Mpp#014+messed.up.markets.(09)

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Mpp#014+messed.up.markets.(09)

  1. 1. Messed Up Markets When markets don’t work 1
  2. 2. Necessary Market ComponentsRequired for efficient markets ~(o) (.C.I.I.P.=) Competition, information,incentives & property rights(o) When all four (4) components existthen markets (can) work efficiently.(o) When any required components ismissing the markets won’t work efficiently. 2
  3. 3. Main Points for Consideration Markets fail to achieve efficiency in making allocations if any of the four components of markets ((.C.I.I.P.=) competition, information, incentives or property rights) are missing. Markets other than perfectly competitive will produce less and sell at higher prices. 3
  4. 4. under Monopoly Conditions Single seller thus no competition Output is lower ~ and price is higher ~ than in competitive markets No efficiency in allocation leading to the underallocation of resources 4
  5. 5. with respect to Information Lack of Information by either the buyers or the sellers Asymmetric information  Either the buyers or the sellers have “more” or “better” information 5
  6. 6. with respect to Externalities the External Benefits associated with ~ e.g. education, inoculation or safety belts  then the private market will under allocate resources to the activity The External Costs associated with ~ e.g. pollution or drunk driving  The private market over allocates resources to polluting activities and sales of alcohol 6
  7. 7. with respect to Poverty & Discrimination Poverty is one (1) underutilization of scarce human capital. Discrimination is viewed as economically and sociologically irrational. Discrimination can usually be minimized by enforcing open competition. 7
  8. 8. Main Points ~ in Summary Markets fail to achieve allocation efficiency if any of the four required components of markets ((.C.I.I.P.=) competition, information, incentives and property rights) are missing. Any market other than a perfectly competitive market will produce fewer goods and sell those goods at a higher price 8
  9. 9. Main Points ~ Final Considerations if there are third party costs ~ the private market will over allocate resources if there are third party benefits ~ the private market will under allocate resources Poverty is defined as the underuse of scarce human capital Discrimination can usually be minimized by open competition 9
  10. 10. Main Points ~ Final Considerations if there are third party costs ~ the private market will over allocate resources if there are third party benefits ~ the private market will under allocate resources Poverty is defined as the underuse of scarce human capital Discrimination can usually be minimized by open competition 9

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