PPT-Market Failures and Externalities

Unit 2 How Markets Work Market Failures Sometimes markets are not able to provide the goods and services desired by consumers or which can be efficiently produced by suppliers This situation is called a . Yale Braunstein. March 2011. Quick intro to “Consumers Surplus”. Actually, the sum of CS & PS. Consumers gain from price decreases. PS = Profit. Monopoly works by restricting output & raining price, therefore results in “deadweight welfare loss”. 10. Externalities . Recall: Adam Smith’s “invisible hand” of the marketplace leads self-interested buyers and sellers in a market to maximize the total benefit that society can derive from a market. . 05. McGraw-Hill/Irwin. Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.. Market Failures. Market fails to produce the right amount of the product. Resources may be:. Over-allocated. Externalities. Essential Questions. Why are markets inefficient in the presence of positive and negative externalities?. How do we identify the area of efficiency loss (deadweight loss) when externalities are present?. F*** you!. - Guns N’ Roses. Externalities. An . externality. is an uncompensated cost or benefit that the decision-maker imposes on others.. An . external benefit. or . positive externality. is a benefit that comes to individuals other than the decision-maker, for which the decision-maker is not compensated.. Because these structures do not allocate goods and services in the most efficient way, economists call them market failures. . market failure - . a situation in which the market fails to allocate resources efficiently. This web quiz may appear as two pages on tablets and laptops.. I recommend that you view it as one page by clicking on the open book icon at the bottom of the page.. 5a. Price Ceilings and Price Floors. Chapter 10. Outline. External costs, external benefits, and efficiency. Private solutions to externality . problems. Government solutions to externality problems. . 2. Introduction. Antibiotics are . Chapter 10. Outline. External costs, external benefits, and efficiency. Private solutions to externality problems. Government solutions to externality problems. . 2. Introduction. Antibiotics are overused. . costs . received by the producers and consumers involved in an exchange. . A kind of . market . failure . occurs . when market . prices . DO NOT reflect . all the costs and all the benefits . involved.. Market failure. is a concept within economic theory where the allocation of goods and services by a . free market. is not efficient. (less than optimum allocation of resources). Causes of Market Failure. What is an externality?. the uncompensated impact of one person's actions on the well-being of a bystander (or 3. rd. party). Two Types of Externalities. Negative Externality. If the impact on the bystander is . PPA . 670. Policy Issue Analysis. Dr. Butz. Economic Freedom. Economic . freedom (from an economic efficiency standpoint) . refers to the degree to which private individuals are able to carry out voluntary exchange without government involvement. This web quiz may appear as two pages on tablets and laptops.. I recommend that you view it as one page by clicking on the open book icon at the bottom of the page.. Market Failures (continued).