ECO 1001 Lecture 4: CH. 4- MARKET FAILURES-PUBLIC GOODS AND EXTERNALITIES
21 Jan 2019
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Document Summary
Market failures- the presence of competition involving many buyers and many sellers may not by itself be enough to guarantee that a market will allocate resources correctly. Demand side failures occur when demand curves do not reflect consumers full willingness to pay for a good or service. Supply-side failures occur when supply curves do not reflect the full cost of producing a good or service. Demand side market failures- arise because it is impossible in certain cases to charge consumers what they are willing to pay for a product. Outdoor fireworks display no way to exclude the public from seeing the display. Therefore, private firms unwilling to produce outdoor fireworks displays unless it has a business reason, macys fourth of july fireworks display. Supply side market failures-a firm does not have to pay the full cost of production its output. Two conditions if a competitive market is to produce efficient outcomes:
