micro economy& m

1. Crosstown Traffic
Chapter 4

2. Market Failures
A market failure occurs when the invisible hand
pushes in such a way that individual decisions do
not lead to socially desirable outcomes.

3. Types Of Failures
1. Externalities
2. Missing market
3. Asymmetric information
4. Unstable prices
5. Labor market

4. Crosstown Traffic is the standard conduct of bad
externalities. What I mean by this is that it’s a
situation when standard activities create
negative spillover outcomes.
For example, everyone drives so the roads get
congested. A business firm produces smoke in
order to maximize profits and damages people's
health.
Crosstown Traffic

5. Externalities
•Externalities are the effect of a decision on
a third party that is not taken into account by
the decision-maker.
•Externalities can be both positive and
negative.

6. • Positive externalities occur when the effect of a
decision on others that is not taken into account
by the decision-maker is beneficial to others.
Examples include innovation, education, and new business formation.
• Negative externalities occur when the effect of a
decision on others that is not taken into account
by the decision-maker is detrimental to the third
party.
Examples include second-hand smoke, water pollution, and congestion.
Types

7. Traffic congestion
• Externality charge (gov tax)
Air pollution