ECON 101 Chapter 16: Market Failures & Government intervention
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ECON 101 Full Course Notes
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The italic texts are quoted from the textbook. !2 i. in free markets producers have pro t incentives and tend to develop new products which may have large demand. Rms on their own the consumption may actually create some extra bene ts or costs to third parties which rms and consumers do not care i. ii. !4: externality - an effect on parties not directly involved in the production or use of a commodity. The presence of externalities, even when all markets are perfectly competitive, leads to allocatively inef cient outcomes: negative externalities refer to harmful externalities like pollution, when there is negative externalities the social mc is greater than private. Public goods i. goods can be de ned broadly by rivalry and excludability. Common-property resources tend to be overused by private rms and consumers. !6: governments usually have licences and quotas to regulate the use of.
