Market Failure diagrams&definitions
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Market Failure diagrams&definitions Market Failure diagrams&definitions Presentation Transcript

  • Market Failure
    Diagrams and Definitions
  • What is market failure?
  • Sources of Market Failure
    Externalities
    Merit and Demerit Goods
    Public Goods
    Abuse of Monopoly Power
  • Positive Externalities
    Negative Externalities
    Third parties benefit from the production of goods and services
    Third parties bear spillover costs of the production of goods and services
    Third parties benefit from the consumption of goods and services
    Third parties bear spillover cost of the consumption of goods and services
  • Negative Production Externality
  • Negative Consumption Externality
  • Tax and Negative Production Externality
  • Tax on Producers and Negative Consumption Externality
  • Advertising to Shift Demand and Reduce Negative Consumption Externality
  • Legislation & Regulation
    Correcting Negative Externalities of Production
    Tradable Permits
    Tax
  • Legislation & Regulation
    Correcting Negative Externalities of Consumption
    Advertising
    Tax firm
  • Positive Production Externality
  • Positive Consumption Externality
  • Legislation
    Correcting Positive Externalities of Consumption
    Advertising
    Subsidies
  • Subsidy
    Correcting Positive Externalities of Production
  • Market-based Appeal
    Internalize Externality
    Offending Firms and third parties monitor progress
    Extension of Property Rights to Correct Negative Externalities
  • Public, Merit & Demerit Goods
  • Public Goods
    Merit Goods
    Demerit Goods
    • Non-Excludable
    • Non-rivalrous
    • Free riders
    • Merit goods are under-consumed and underprovided
    • Demerit goods are overconsumed and overprovided
  • Solutions
    • Positive externalities
    • Lack of income
    • Lack of knowledge
    • subsidies
    • government provision
    • advertising
    • regulation
    Merit Goods
  • Solutions
    • Negative externality
    • Lack of knowledge and/or apathy
    • tax
    • advertising
    • regulation
    Demerit Goods
  • Solutions
    • inefficiencies
    • higher prices
    • legislation and regulation
    • government ownership
    Monopoly Power