1. Market Failures

2. 1) Inadequate Competition Inefficient resource allocation Higher prices and reduced output Economic and political power

3. Inadequate Competition Oligopoly: market structure where a few very large sellers dominate the industry Monopoly: market structure with only one seller of a particular product

4. Inadequate competition Demand-side failures Difficult to correct

5. 2) Inadequate Information Ch 5, Naked Economics Information in the labor market Seinfeld--imperfect informationSeinfeld--imperfect information

6. 3) Resource Immobility Land, labor, and capital are difficult to move…they do not always respond to efficiently to changes in the market

7. 4) Externalities An unintended side effect that either benefits or harms a third party not involved in the activity that caused it.

8. 5) Public Goods Products that are collectively consumed by everyone.

9. The Solution? Distorting the Market

10. The Market and the Government Maintaining legal and social framework –Court system –Labor laws

11. Providing Public Goods and Services Highways Defense Environmental concerns

12. Maintaining Competition Anti-trust laws Truth in advertising

13. Redistributing Income Taxes Medicare Social Security

14. Correcting for Externalities Environmental concerns

15. Stabilizing the Economy Interest rates Supply-side vs. Keynesian spending Incentives