Mcpake Ch 7.docx

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University of Toronto Mississauga
Multiple Professors

Mcpake Ch 7 Market failure and government71 introductionit is important to remember that divergences from perfect markets are not necessarily bad things in themselvespositive externality is a good example coming up belowoncea divergence is identified the challenge is to find a strategy which responds to the resulting inefficieny and will perform better than leaving the market to its own devices government intervention is recommended only if likely government failure to intervene perfectly is less than the market failure under assessment72 externalityexternality has been defined as a side effect of either consumption or production which is not traded on the market or taken into account in setting a pricein other words consumers and producers either are not affected or do not bear the full brunt of the effects their consumption or productionthe standard example of negative externality is pollution usually but not always a side effect of production a producer of clothing may release dye stuffs into the local riverexternalities can be positive or negative and can arise in production or consumptionthere are many externalities affecting health careif one persons TB is treated and cured others are not infected If vaccination is received by the majority the unvaccinated minority may also
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