Lecture 5 mkt failure

Lecture 5 mkt failure - Market Failure Ariel Singerman...

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Unformatted text preview: Market Failure Ariel Singerman October 12, 2010 Why pollution persists? Why are roads congested sometimes? Are all the assumptions of a fully functioning market in place? Can incentives be restored? I. Public goods II. Externalities III. Open access Public goods and bads 2 fundamental characteristics of goods: 1. Excludability 2. Rivalry Excludability : A good (bad) is excludable if it is feasible and practical to selectively allow consumers to consume (avoid consumption of) the good (bad). A price keeps the consumer from the good deny consumption if price not paid 2 factors play major role: 1. cost of exclusion 2. technology of exclusion We expect to see exclusion when benefits exclusion > costs exclusion Why is excludability important? To attach a price to a good, need to be able to deny consumption if price not paid Must be possible to take possession of good or bad if price is paid Without excludability price system cannot work Public goods and bads Rivalry : Pertains to the manner in which a good is consumed The act of consumption destroys the good and makes it unavailable for others A bad (good) is rival if ones person consumption of a unit of the bad (good) diminishes the amount of the bad (good) available for others to consume A good is non-rival when its consumption does not diminish what is available for others Why is it rivalry important? Why is it rivalry important?...
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Lecture 5 mkt failure - Market Failure Ariel Singerman...

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