Chapter_8 - Chapter 8 October 4 2011 What is a market...

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Chapter 8 October 4, 2011
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What is a market failure? A market failure occurs when market transactions do not lead to a socially efficient allocation of resources.
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Creating and Enforcing Property Rights Government creates and enforces property rights because property rights or the concept of ownership is a precondition of a functioning market. Example: Oil companies won’t invest in Venezuela’s enormous oil industry. Why?
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Lowering Transaction Costs to Facilitate Private Commerce Information Regulation Could we provide these services without government?
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Coal Mining Regulation Prior to the early 1900s, there was no federal regulation of the mining industry. The annual fatality rate was 6 out of every 1,000 miners. Companies cared very little about safety. Why? Workers were cheap. Compensation for a death occurred in less than half the cases and amounted to less than half a year’s wages.
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Coal Mining Regulation Now Bureau of Mines (1910), Mine Safety and Health Administration (1970), and Workers Compensation. Injury rates in mining have been cut by 50%.
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Promoting Competition Competition in the market is what produces innovation, lower prices, and better service. What would firms prefer? Less competition!
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