market failures as we studied market structures, you learned that most fall into the broad category...

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.

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

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.

Negative Externalities When a neighbor holds a party with loud music that keeps you up at night.

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

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.

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.

Public Goods Fire & Police services National Defense Public Parks

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.

Private Goods Repair services Delicious snacks Theme Parks

Public vs. Private Goods

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.

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.

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

Public or Private Goods? Lets try some examples: Excludable? Rival in consumption? PRIVATE

Public or Private Goods? Excludable? Rival in consumption? PRIVATE

Public or Private Goods? Excludable? Rival in consumption? PUBLIC

Public or Private Goods? Excludable? Rival in consumption? PUBLIC Congress

Public or Private Goods? Excludable? Rival in consumption? BOTH High School

Public or Private Goods? Excludable? Rival in consumption? PUBLIC Awesome

market failures as we studied market structures, you learned that most fall into the broad category...

Documents