MARKET FAILURES

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MARKET FAILURES

• PUBLIC GOODS AND EXTERNALITIES

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Market Failures

• Market Failures
• The free-market doesnt distribute resources
  efficiently
• Free riders
• No profit incentive for producers
• Consumers unable or unwilling to pay individually
  if given the choice. Yet they can harm or be
  harmed by not receiving the good.

3
Public Gooda shared good or service in which it
would be impractical or inefficient to

• To make consumers pay individually
• To exclude those
• who did not pay

4
Public goods are paid for collectively by all tax
paying citizens
5
Cost BenefitsGovernments act in the public
interest when they determine the benefits of a
policy outweigh the costs.

• Criteria
• The benefit is less to each individual than the
  cost if they were to each pay individually
• The total benefits to society are greater than
  the cost

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Why governments intervene the good news

• Consumer information
• Public Health
• Public Safety
• Well-being of society

7
Government Interference the bad news

• High costs to business resulting in lower profits
  and slow growth
• Higher costs to consumers
• Higher taxes for producers consumers

8
Externalities

• Positive externality

• Negative externality

• Side effect that benefits someone other than the
  producer or consumer

• Side effect that costs someone other than the
  producer or consumer