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Economics
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31 Oct 2020

5. When markets fail to allocate resources efficiently, the ultimate source of the problem is usually: 

a. government regulation
b. that prices are not low enough so firms overproduce.
c. that prices are not high enough, so people overconsume.
d. that property rights have not been well established.

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Microeconomics
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Understanding the concept of Public Goods
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Raushan Raj
Raushan RajLv8
31 Oct 2020

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Related questions

The free-rider problem refers to a situation in which
 
a. people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.
b. the marginal cost of allowing additional consumers to consume a public good is zero.
c. high-income individuals subsidize the production of goods, such as education, which makes society better off.
d. markets fail to allocate resources efficiently when benefits outweigh costs.

Adam Smith usually referred to as the father of Economics expounded the theory of free markets and opposed any form of concentration of economic power. He believed that any authority establishing a price that provided a fair price to the providers of the factors of production would distort the market's natural ability to determine prices and output levels. In general, he believed that competitive markets would allocate resources to their highest and best use. However, in recent times, we have seen the market mechanism fail and allocate too many or too few resources to the consumption or production of some goods and services.

-What are some of the reasons for this failure? -Has government intervention into competitive markets changed the efficiency of these markets? Why or why not?

-Was Smith correct or incorrect in his theories concerning the efficiency of the markets in the allocation of resources?

Support your answers with examples and references. Justify your choices with valid assumptions and logically driven arguments.

NOTE: I am just trying to wrap my head around these concepts so what I would like to know is of these 6 available options, which three, would be the simplest in terms of theory to explain? _______________________________________________________________________ Thevast majority of economists are classically trained, which means we tend to see the free and unencumbered functioning of the marketplace as yielding the best economic outcomes. Where policy is needed is when the market fails to produce socially acceptable results. A prime example of market failure has to do with pollution: unless polluters are forced to incorporate into their financial calculations the costs of the pollution they cause, they will overproduce and continue to destroy the environment. The following list describes situations where the government may want to step in: ____________________________________________________________________________________________________________________________ 1. Monopoly power: Markets may fail to control the abuses of monopoly power.---------- 2. Missing markets: Markets may fail to form, resulting in a failure to meet a need or want, such as the need for public goods, such as defense, street lighting, and highways. ------3. Incomplete markets: Markets may fail to produce enough merit goods, such as education and healthcare.------- 4. De-merit goods: Markets may also fail to control the manufacture and sale of goods like cigarettes and alcohol, which have less merit than consumers perceive. --------5. Property rights: Markets work most effectively when consumers and producers are granted the right to own property, but in many cases property rights cannot easily be allocated to certain resources. Failure to assign property rights may limit the ability of markets to form.-------- 6. Information failure: Markets may not provide enough information because, during a market transaction, it may not be in the interests of one party to provide full information to the other party. ______________________________________________________________________________________________________________________________________Pick three from this list and explain what types of policies might be proposed to offset the market’s failure. Explain why your proposals might work but also if the policies themselves might have negative side effects.

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