1. Market Failures
Unit 3- Microeconomics

2. Market Failures The most common market failures involve cases of:
Inadequate Competition
Inadequate Information
Resource Immobility
Externalities
Public Goods

3. Inadequate Competition
Consequences of decrease in competition:
Inefficient Resource Allocation
Higher Prices and Reduced Output
Economic and Political Power

4. Inadequate Information
If resources are allocated efficiently, everyone knows market conditions
If info is hard for consumers to obtain, it’s an example of market failure

5. Resource Immobility
Factors of production cannot move easily to markets where they’d be the most profitable
Can make markets function inefficiently

6. Externalities
Externality: unintended side effect that either benefits or harms a third party not involved in the activity that caused it
Costs & benefits aren’t reflected in the market price

7. Negative Externality
Negative Externality: harm, cost, or inconvenience suffered by a third party because of the action of others.
Ex) pollution, noise, etc.

8. Positive Externality
Positive Externality: A benefit received from someone that has nothing to do with the activity that generated the benefit
Ex) Jobs created at new businesses, etc.

9. Public Good Public Good: products collectively consumed by everyone
Interstates and freeways, national defense, police & fire protection

10. Public Goods cont. Not supplied by the market
Market is successful in satisfying individual needs/wants but fails to satisfy them on a collective basis