ECON 102 Lecture Notes - Lecture 4: Market Failure, Monopsony, Market Power
12 Mar 2018
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Market power: a lack of competition in a market leads to prices that do not reflect costs, monopoly vs. monopsony, oligopolies and cartels. Externalities: prices should reflect all costs, including those to society, negative vs. positive externality, negative: additional cost to society not accounted for in the price, positive: additional benefit to society not accounted for in the price. Public goods: non-excludable and non-rivalrous, rival = can be consumed, one person"s consumption prevents another, excludable= can you be prevented form consuming this, admission fee, ex. Parks, national defense: tragedy of the commons: healthcare, fish in the ocean, market would simply not provide since unable to recover the cost of production. Asymmetric information: one side of the market (the seller or the buyer) knows more than the other, market solution will not be fair, nor efficient, used car market (market for lemons, moral hazard. Price controls: distorts the markets by either increasing quantity demanded or.
