ECON111 Lecture Notes - Lecture 12: Pareto Efficiency, Banana Plantation, Market Failure
15 Mar 2020
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Week 12 markets, efficiency, and public policy. Outline: introduction, external effects, market failure: other types, limits to markets, introduction. We have looked at behaviour of buyers and sellers under different market conditions, and conditions under which the competitive equilibrium is pareto efficient. In reality, markets may allocate resources in a pareto inefficient way (market failure). Examples of market failures: pesticides in the caribbean. Banana plantation owners used harmful pesticides to reduce costs and increase their profits. The chemicals leaked into the rivers and contaminated the local seafood, damaging causing residents to fall seriously ill: overuse of antibiotics. People often overuse antibiotics when other treatments would be better, which creates bacteria-resistant pathogens. Institutions e. g. government - enforce property rights enforce legal ownership. Private property - the rights to the thing bought/sold. Ability to write complete and enforceable contracts that can be evaluated in a court of law.
