ECON 2005 Lecture Notes - Lecture 18: Imperfect Competition, Market Power, Externality

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1 Apr 2018
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Sources of market failure: market failure occurs when resources are misallocated or allocated inefficiently. The result is waste or lost value: four important sources of market failure: Imperfect information: the existence of public goods, the presence of external costs and benefits. Imperfect competition an industry in which single firms have some control over price and competition. Imperfect information the absence of full knowledge concerning product characteristics, available prices, and so forth: public goods goods or services that bestow collective benefits on members of society. Generally, no one can be excluded from enjoying their benefits. Freely functioning markets in the real world do not always produce and efficient allocation of resources, and this result provides a potential role for government in the economy. This gives the monopolist power over the price. The fewer substitutes there are, the less elastic the demand is and the more power the monopolist has.

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