ECN_203__8,9 & 10___Market_Power_and_Market_Failure(f09)

ECN_203__8,9 &...

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Chapter 8, 9 & 10: Market Problems Markets do not always achieve efficiency. Two general problems sometimes occur: 1. Market Power 2. Market Failure We will examine each of these problems and potential government solutions.
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Market Power Market Power -- a market structure where a small group of individuals controls the market. In competitive markets, no individual buyer or sellers can affect the market outcome (i.e. price).
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Inefficiency of Market Power A competitive society leads to an efficient outcome: 1. Society using all their endowment (productive resources) to achieve highest level of production. 2. Each individual is rewarded with social product (production received) based on their own share of the endowment.
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Inefficiency of Market Power Market power makes the economy less efficient. 1. Distributes a larger share of the social product (production) of the economy to the powerful. 2. Produces less than can be achieved with social endowment.
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Market Power in Industry Monopoly -- industry with a single producer (e.g. Microsoft). -- Controls price and receives all profits in the market. Oligopoly -- industry with a small group of producers (e.g. OPEC). -- May act as a monopoly to receive more profits or compete for market share.
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Markets/ Natural Consider a labor market with a very high demand for a certain attribute. Now consider individuals who have this attribute more than anyone else. The result – a large amount of market
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ECN_203__8,9 &...

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