Taxation and Consumer Protection.docx - A market failure is...

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A market failure is a scenario in which the free market does not provide necessary goods and services—such as clean air, police protection, and highways. An externality is a benefit or cost of a business transaction that affects a third party. Private cost is the cost of producing a good or service, without considering any of the external costs. A good is excludable when a consumer may not use the good unless the consumer pays for it. A laptop is an excludable good because a consumer must pay for it to use it. A good is non- excludable when all people can use it, even if they do not pay for it. A lighthouse is nonexcludable—anyone can see the signal from the lighthouse. A rival good prevents another consumer from using that good at the same time. For example, if one person is using a hammer, another person cannot use the same hammer. (Some rival goods are consumable. When the consumer uses the good, it is destroyed. Eating an apple is an example.) Non-rival means that one person's use of a good does not reduce anyone else's use of it. When you turn on the television to watch a show, you do not reduce anyone else's ability to see that same program. Excludable Nonexcludable Rival Private good (laptop) Common/Common-pool goods (fish in a pond) Nonrival Club good (movie theatre) Public good (broadcast) Asymmetric information occurs when someone in the market knows more than others in the market. Regulations are sometimes called administrative law , as opposed to statutory law , which refers to legislation passed by Congress. Federal regulations are compiled in the Code of Federal Regulations (CFR). Tech-based standard: all companies must use this method to attain this goal Performance-based standard: all companies must meet these quotas A horizontal merger is when two companies that make competing products—for instance, two car companies—merge to enjoy greater economies of scale or gain more market power.

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