Lecture+18 - Announcements HW for ch 8 due Monday 1 of 22...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Announcements HW for ch 8 due Monday 1 of 22
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 of 22 ALLOCATIVE EFFICIENCY AND COMPETITIVE EQUILIBRIUM PERFECT COMPETITION VERSUS REAL MARKETS We have built a model of a perfectly competitive market system that produces an efficient allocation of resources, an efficient mix of output, and an efficient distribution of output. The perfectly competitive model is built on a set of assumptions, all of which must hold for our conclusions to be fully valid. These assumptions do not always hold in real- world markets.
Background image of page 2
3 of 22 THE SOURCES OF MARKET FAILURE market failure Occurs when resources are misallocated, or allocated inefficiently. The result is waste or lost value. There are four important sources of market failure: (1) imperfect market structure, or noncompetitive behavior, (2) imperfect information. (3) the existence of public goods, and (4) the presence of external costs and benefits
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 of 22 THE SOURCES OF MARKET FAILURE IMPERFECT MARKETS imperfect competition An industry in which single firms have some control over price and competition. Imperfectly competitive industries give rise to an inefficient allocation of resources. monopoly An industry composed of only one firm that produces a product for which there are no close substitutes and in which significant barriers exist to prevent new firms from entering the industry. The Problem: In all imperfectly competitive industries, output is lower— the product is underproduced—and price is higher than it would be under perfect competition. The equilibrium condition P = MC does not hold, and the system does not produce the most efficient product mix.
Background image of page 4
5 of 22 THE SOURCES OF MARKET FAILURE The Problem: The conclusion that markets work efficiently rests heavily on the assumption that consumers and producers have full knowledge of product characteristics, available prices, and so forth. The absence of full information can lead to transactions that are ultimately disadvantageous. IMPERFECT INFORMATION imperfect information The absence of full knowledge concerning product characteristics, available prices, and so forth.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 of 22 THE SOURCES OF MARKET FAILURE PUBLIC GOODS public goods, or social goods Goods or services that bestow collective benefits on members of society. Generally, no one can be excluded from enjoying their benefits. The classic example is national defense.
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 28

Lecture+18 - Announcements HW for ch 8 due Monday 1 of 22...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online