The document discusses how markets fail to work efficiently when any of the necessary components - competition, information, incentives, and property rights - are missing. It provides examples of how markets perform less efficiently under conditions of monopoly, asymmetric information, externalities, poverty, and discrimination. The key points are that markets will allocate resources less efficiently and prices will be higher if any of the necessary components are absent.

1. Messed Up Markets
When markets don’t work
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2. Necessary Market Components
Required for efficient markets ~
(o) (.C.I.I.P.=) Competition, information,
incentives & property rights
(o) When all four (4) components exist
then markets (can) work efficiently.
(o) When any required components is
missing the markets won’t work efficiently.
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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.
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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
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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
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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
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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.
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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
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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
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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
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