market failures

private goods

rivalry- if I consume it, you cant excludability- people can be excluded from the good ex. hamburger, public school

govt. intervene in the market place to stimulate demand toward the socially efficient level through

tax credits & subsidies

coase theorem

the outcome will be the same regardless of who owns the property rights

for efficient production we should consider:

the private costs- producers control and pay the external costs- associated w factory and others pay

coase theorem is characterized by

well-defined property rights -low transaction costs -resources that naturally gravitate toward the highest valued function

optimal level

MB=MC does not exceed

economic bad

any item for which we would pay to have less

positive externality

beneficial side effect that affects an uninvolved third party

from an economic perspective pollution has

both costs and benefits

if there are substantial external consumption benefits associated with the production of z then the government:

can improve the allocation of resources by subsiding consumers of Z

pollution is a example of

economic bad

when a ____ externality exists, the socially optimal level of output will be less than that resulting in a private market

negative

free rider problem most likely exists when goods are

nonexcludable and nontrivial

public good

nonrival- if I use it it doesn't stop you from it either nonexcludable- people cant easily be prevented ex. firework show -competitive markets are difficult at producing

when theres positive externalities:

-market equilibrium is inefficient -too little is produced -price doesn't reflect value

when theres negative externalities:

-market equilibrium is inefficient -too much is produced -market price is too low

where there are spillover (external) benefits from having a particular product in society, the government can make the quantity of the product approach the society optimal level by doing all the following except:

taxing the sellers of the product

negative externality

the harm, cost, or inconvenience suffered by a third party because of actions by others