Market Failures Chapter 7 Section 2

Public Goods Collectively consumed by everyone Examples: highways, flood control measures, national defense, police and fire protection Government normally has to supply these

Inadequate Competition Due to: mergers and acquisitions Inefficient Resource Allocation: –If a firm controls the market-no reason to use resources (money) carefully Higher Prices and Reduced Output: –Artificial shortages Economic and Political Power: –Bosses Both Sides of the Market –Both on supply side and demand side

Inadequate Information Some information is easy to find: want ads, sale prices, commercials If knowledge is important to buyers, but hard to find=MARKET FAILURE

Resource Immobility CELL does not move to markets where there is the most return Resource Mobility is an ideal situation for a free enterprise economy, but is very difficult to accomplish in the real world

Externalities Externality: an unintended side-effect that can either benefit or harm a third party NEGATIVE Externality: harm, cost, or inconvenience suffered by a third party –Noise inconvenience due to airport expansion POSITIVE Externality: benefit received by a third party –Local restaurants benefit due to airport expansion