Market Failures As we studied market structures, you learned that most fall into the broad category...
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- Market Failures As we studied market structures, you learned
that most fall into the broad category of imperfect competition.
Because these structures do not allocate goods and services in the
most efficient way, economists call them market failures. market
failure - a situation in which the market fails to allocate
resources efficiently But imperfect competition is not the only
form of economic inefficiency.
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- Externalities You might think of externalities as spillover
effects, either costs or benefits, resulting from the actions of
companies or individuals. externality- a cost or benefit that
arises from production or consumption of a good or service that
falls on someone other than the producer or consumer
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- Negative Externalities negative externality - a cost of
production or consumption that falls on someone other than the
producer or consumer; a negative side effect When a factory dumps
chemical waste into a river and the polluted water affects the
health of people who live downstream.
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- Negative Externalities When a neighbor holds a party with loud
music that keeps you up at night.
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- Positive Externalities positive externality - a benefit of
production or consumption that falls on someone other than the
producer or consumer; a positive side effect Students who get a
college education benefit directly by getting higher-paying jobs.
But if their success also results in greater economic prosperity
for their communities, that is a positive externality
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- Positive Externalities An person receiving a vaccination not
only decreases the likelihood of the individual's own infection,
but also decreases the likelihood of others becoming infected
through contact with the individual.
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- Public Goods public goods - goods and services that are not
provided by the market system because of the difficulty of getting
people who use them to pay for their use. You might remember public
goods & services as those provided by the government that
benefit all people at the same time. When we look at public goods
& services as a market failure, the definition is slightly
different.
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- Public Goods Fire & Police services National Defense Public
Parks
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- Private Goods private goods - goods and services that are sold
in markets; distinct from public goods Private goods are different
from public goods in that they are not paid for by the government
and they are sold in markets for a profit. The business that
produce these goods are owned and operated by private citizens not
governments.
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- Private Goods Repair services Delicious snacks Theme Parks
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- Public vs. Private Goods
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- Public goods, on the other hand, are nonexcludable. Think of
streetlights. How could you prevent some people from using the
light from streetlights? You could not. This makes them
nonexcludable. Economists make two key distinctions between public
& private goods. First, private goods are excludable. This
means that anyone who does not pay for the good can be excluded
from using it. A grocery store, for example, will sell apples only
to customers willing to pay for them.
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- Public vs. Private Goods In contrast, public goods are nonrival
in consumption. One persons use of a streetlights glow does not
diminish anothers ability to use its light as well. Second, private
goods are said to be rival in consumption, which means that a good
cannot be consumed by more than one person at the same time. Thus,
for example, if you buy an apple and eat it, that apple is no
longer available for anyone else to eat.
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- Public vs. Private Goods Private Good Public Good Provided by
Market System? Yes; producers can sell private goods for profit.
No; no incentive for producers; the government must provide.
Excludable? Yes; available only to consumers who purchase the
product. No; available to everyone. Rival in consumption? Yes;
consumption by one person prevents another from consuming. No;
consumption by one person does not prevent others from consuming.
BLOCK
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- Public or Private Goods? Lets try some examples: Excludable?
Rival in consumption? PRIVATE
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- Public or Private Goods? Excludable? Rival in consumption?
PRIVATE
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- Public or Private Goods? Excludable? Rival in consumption?
PUBLIC
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- Public or Private Goods? Excludable? Rival in consumption?
PUBLIC Congress
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- Public or Private Goods? Excludable? Rival in consumption? BOTH
High School
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- Public or Private Goods? Excludable? Rival in consumption?
PRIVATE
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- Public or Private Goods? Excludable? Rival in consumption?
PUBLIC
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- Public or Private Goods? Excludable? Rival in consumption?
PRIVATE
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- Public or Private Goods? Excludable? Rival in consumption?
PUBLIC
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- Public or Private Goods? Excludable? Rival in consumption?
PUBLIC Awesome