Market failure

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Market failure

  1. 1. Market Failure<br />Kanako Nakagawa<br />
  2. 2. Positive Externality<br />Beneficial effects that are enjoyed by a third party when a good or service is produced or consumed<br />Example: firm offering advanced driver training for their employees (to increase private benefit, and also have a spillover effect for society in improving safety on the roads.)<br />
  3. 3. Positive Externality of Consumption<br />Positive externality<br />MSC = MPC<br />Price<br />Figure 1: Positive Externalities of consumption<br />Welfare gain<br />P1<br />P2<br />MSB<br />MPB<br />0<br />Q1<br />Q2<br />Quantity<br />
  4. 4. Positive Externality of Production<br />MPC<br />Positive externality<br />Price<br />MSC<br />Figure 1: Positive Externalities of production<br />P1<br />Welfare gain<br />P2<br />MSB = MPB<br />0<br />Q1<br />Q2<br />Quantity<br />
  5. 5. Negative Externalities<br />Bad effects that are suffered by a third party when a good or service is produced or consumed.<br />Example: pollution, the effects of second-hand smoking.<br />
  6. 6. Negative Externality of Consumption<br />Negative externality<br />MSC = MPC<br />Price<br />Figure 1: Negative Externalities of consumption<br />Welfare loss<br />P2<br />P1<br />MPB<br />MSB<br />0<br />Q2<br />Q1<br />Quantity<br />
  7. 7. Negative Externality of Production<br />MSC<br />Negative externality<br />Price<br />MPC<br />Figure 1: Negative Externalities of production<br />P2<br />Welfare loss<br />P1<br />MSB = MPB<br />0<br />Q2<br />Q1<br />Quantity<br />
  8. 8. Public Goods<br />Goods or services that would not be provided at all by the market.<br />Have the characteristics of non-rivalry and non-diminish ability<br />Example: flood barriers<br />
  9. 9. Merit Goods<br />Goods or services considered as beneficial for people and that would be under-provided by the market and so under-consumed.<br />Example: education and health care<br />
  10. 10. Demerit Goods<br />Goods or services considered to be harmful to people and that would be over-provided by he market and so over-consumed.<br />Example: cigarettes and alcohol<br />

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