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
