Unit 7 Pt 1 Market Failures

Examples of Gov't Failures

-Intervention creates further inefficiencies -Deepens the market failure -Causes a new market failure

What is inequity in economics with the market?

-Markets may also fail to limit the size of the gap between income earners, the so-called income gap. --Market transactions reward consumers and producers with incomes and profits, but these rewards may be concentrated in the hands of a few.

How does the government deal with the inequities from the market?

-The gov't provides programs that help in the needed areas and are funded through tax dollars. ex) food stamps(SNAP), Medicaid(healthcare), welfare(TNAP).

What did the gov't do to prevent unfair competition?

-outlaw collusion (price fixing) to push out smaller companies -passed laws that prohibit unfair competition practices. -major companies need permission before merging

Why would the government provide public goods?

-private companies are for-profit and would not provide them

What are examples of public goods?

National Defense, Public Education, and highways

Markets cannot solve or account for the costs and benefits of externalities.

So, often gov'ts have to action to either fix problems caused by negative externalities or capitalize on the benefits of positive ones.

What is one way the government can handle negative externalities?

The gov't can attempt to control the cost of them by taxing producers, goods, and services. ex) tax on vaping products

How does the government take advantage of the benefit of positive externalities?

The gov't can attempt to take advantage of the benefits by financially supporting producers, goods, and services. ex) funding public universities

What is a government failure?

When the cost of solving a market failure is greater than the benefit.

What are externalities?

When the some of the costs and the benefits associated with the production and consumption of a product fall on someone other than the producers or the consumers.

examples of positive externalities

education, vaccines

What is a market failure?

occurs when the market forces of supply and demand do not lead to the output that society desires

examples of negative externalities

pollution and smoking

Two types of externalities

positive and negative

4 types of market failures

public goods, externalities, market power, inequity

What is market power(market share)?

the ability of a company (or group of companies) to raise and maintain price above the level that would prevail under competition

What is the purpose of government intervention in market failures?

to provide for people and other areas where the market failed (protection)