MARKET FAILURES

FAILURES IN THE MARKET THE MAIN FAILURES IN THE MARKETS ARE 1: PUBLIC GOODS 2: EXTERNALITIES CAUSED BY ECONOMIC ACTIVITIES 3: IMPERFECT COMPETITION

MARKET FAILURES 1: PUBLIC GOODS ACTIVITY 1.- PUBLIC GOODS.

MARKET FAILURES 1: PUBLIC GOODS Private goods are produced to be consumed only by buyers or for whom they choose. Public goods are shared by a lot of people, being impossible to exclude anybody from its consumption.

MARKET FAILURES 1: PUBLIC GOODS FEATURES: Public goods are non-excludable. Public goods are non-rivalrous.

MARKET FAILURES 1: PUBLIC GOODS Public goods are non-excludable. It means that no one can be excluded from using the product. Examples: Think about the “mascletàs” or swimming on the beach. How can we require to pay for attending a fireworks display or for going swimming to the beach?

MARKET FAILURES 1: PUBLIC GOODS Public goods are non-rivalrous. It means that the consumption of the good by one person does not reduce its availability for other persons to consume it. For example: If you buy a t-shirt nobody else can buy the same product, but if you go swimming on the beach you can not avoid that other people could swim as well.

MARKET FAILURES 1: PUBLIC GOODS MARKETS do not usually respond to social needs since they don’t provide profits to the companies and they are more interested in maximizing their own profitability instead of solving social problems.

EXISTENCE OF PUBLIC GOODS SOLUTION: Intervention of the Public Sector: The Government has, therefore, the need to provide the citizens with the public services they demand such as justice, defense, public health, education, etc. which have to be funded by taxes.

FAILURES IN THE MARKET 2: EXTERNALITIES CAUSED BY ECONOMIC ACTIVITIES ACTIVITY 2 Externalities

3:EXTERNALITIES CAUSED BY ECONOMIC ACTIVITIES Some business activities cause to the population external costs. They are known as negative externalities, which are not solved by the companies that have produced them, but instead by the whole community. Some examples can be: desforestation, climate change, etc.

EXTERNALITIES CAUSED BY ECONOMIC ACTIVITIES Nowadays, it is known that one of the most important problems in the environment is pollution What can the government do to avoid or to reduce it?: Establishing maximun polution limits Implementing taxes Giving pollution licences

EXTERNALITIES CAUSED BY ECONOMIC ACTIVITIES Activity 3.- Reading. Pages 80-82 Business Studies Now. K. Borrington and Peter Stimpson.

FAILURES IN THE MARKET 3: IMPERFECT COMPETITION. ACTIVITY 1 ACTIVITY 3: Listening about Microsoft company

4:IMPERFECT COMPETION Markets trend to be imperfects. Forms of imperfect competition markets, as you know, are the next: Monopoly Oligopoly Monopolistic competition

IMPERFECT COMPETITION Intervention of the public sector: Competition Comission have to control the market because both dealing prices or shearing the market is forbidden