Market Failure diagrams&definitions

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Market Failure diagrams&definitions

  1. 1. Market Failure<br />Diagrams and Definitions<br />
  2. 2. What is market failure?<br />
  3. 3. Sources of Market Failure<br />Externalities<br />Merit and Demerit Goods<br />Public Goods<br />Abuse of Monopoly Power<br />
  4. 4. Positive Externalities <br />Negative Externalities<br />Third parties benefit from the production of goods and services<br />Third parties bear spillover costs of the production of goods and services<br />Third parties benefit from the consumption of goods and services<br />Third parties bear spillover cost of the consumption of goods and services<br />
  5. 5. Negative Production Externality<br />
  6. 6. Negative Consumption Externality<br />
  7. 7. Tax and Negative Production Externality<br />
  8. 8. Tax on Producers and Negative Consumption Externality<br />
  9. 9. Advertising to Shift Demand and Reduce Negative Consumption Externality<br />
  10. 10. Legislation & Regulation<br />Correcting Negative Externalities of Production<br />Tradable Permits<br />Tax<br />
  11. 11. Legislation & Regulation<br />Correcting Negative Externalities of Consumption<br />Advertising<br />Tax firm<br />
  12. 12. Positive Production Externality<br />
  13. 13. Positive Consumption Externality<br />
  14. 14. Legislation<br />Correcting Positive Externalities of Consumption<br />Advertising<br />Subsidies<br />
  15. 15. Subsidy<br />Correcting Positive Externalities of Production<br />
  16. 16. Market-based Appeal<br />Internalize Externality<br />Offending Firms and third parties monitor progress<br />Extension of Property Rights to Correct Negative Externalities<br />
  17. 17. Public, Merit & Demerit Goods<br />
  18. 18. Public Goods<br />Merit Goods<br />Demerit Goods<br /><ul><li>Non-Excludable
  19. 19. Non-rivalrous
  20. 20. Free riders
  21. 21. Merit goods are under-consumed and underprovided
  22. 22. Demerit goods are overconsumed and overprovided</li></li></ul><li>Solutions<br /><ul><li>Positive externalities
  23. 23. Lack of income
  24. 24. Lack of knowledge
  25. 25. subsidies
  26. 26. government provision
  27. 27. advertising
  28. 28. regulation</li></ul>Merit Goods<br />
  29. 29. Solutions<br /><ul><li>Negative externality
  30. 30. Lack of knowledge and/or apathy
  31. 31. tax
  32. 32. advertising
  33. 33. regulation</li></ul>Demerit Goods<br />
  34. 34. Solutions<br /><ul><li>inefficiencies
  35. 35. higher prices
  36. 36. legislation and regulation
  37. 37. government ownership</li></ul>Monopoly Power<br />

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