1. Starter: Are you awake?
Hidden in this picture are 75 tube stations? How many can you find?

2. What are we learning about today?
What do all these pictures have in common?

4. What is market failure
How can it happen?
Market failure occurs when scarce resources are not allocated efficiently.
e.g. The price of something is too high or too low and therefore too much of something is consumed, or too little.

5. Complete and partial market failure
Complete market failure occurs when the market simply does not supply products at all - we see "missing markets"
Partial market failure occurs when the market does actually function but it produces either the wrong quantity of a product or at the wrong price.

6. Third-party effects ignored by the price mechanism
Externalities
Prices & profits should be accurate signals – however can be misleading
May not reflect true prices and profits to society of economic activities
Third-party effects ignored by the price mechanism

7. Provision of public goods
Market may fail to provide or underprovide certain goods and services
E.g. – in the provision of public goods –e.g. defence, street lighting and policing
People expect others to pay for such goods – which if left to a free economy, would mean they would be underprovided

8. Information gaps
Do buyers and sellers have the same amount of information?
Asymmetric information – one party has more information than the other
This can lead to consumers or producers making non-rational economic decisions

9. A used car salesman selling a 2002 VW Golf to an 89 year old woman.
Information Failure
A used car salesman selling a 2002 VW Golf to an 89 year old woman.
Failed market?

10. Lack of Competition
A pharmaceutical company, has invented a new wonder drug that cures short sightedness. The drug is patent protected.
Failed market?

11. There are over 1,400,000 streetlights in the UK.
Missing Market
There are over 1,400,000 streetlights in the UK.
Failed market?

12. Inequality
A middle aged woman pays someone to pull her around on a cart all day. The servant is happy for the work, because he has no alternative.
Failed market?

13. Factor Immobility
A group of coal miners have worked down in the pit for their whole lives, as have their family for generations. The mine has closed down.
Failed market?

14. Externalities
A 36 year old entrepreneur owns a bar. She sells over £26,000 of alcohol every week.
Failed market?
You pay someone to pull you around on a cart all day. He is happy for the work.
Failed market?

15. What are the externalities?
How can it happen?
TASK: Research and make a list of the externalities of the alcohol market. Try to be as specific as possible.