Chapter 4 - Market failures: public goods and externalities. This chapter seeks to define a market failure and the consequences of a market failure. The chapter begins by looking at the demand side of market failures, the supply side of market failures, and the inefficiencies found. It goes on to describe and show consumer and producer surplus. It defines and describes private goods, public goods, the free-rider problem, and quasi-public goods. | Chapter 4 Market Failures: Public Goods and Externalities Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. This chapter seeks to define a market failure and the consequences of a market failure. The chapter begins by looking at the demand side of market failures, the supply side of market failures, and the inefficiencies found. It goes on to describe and show consumer and producer surplus. It defines and describes private goods, public goods, the free-rider problem, and quasi-public goods. It shows how to find the optimal amount of public goods the government should produce using a cost-benefit approach and finishes with a discussion of government failure. The Last Word is about carbon dioxide emissions and different ways governments have tried to deal with air pollution. Market Failures Market failures Markets fail to produce the right amount of the product Resources may be . | Chapter 4 Market Failures: Public Goods and Externalities Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. This chapter seeks to define a market failure and the consequences of a market failure. The chapter begins by looking at the demand side of market failures, the supply side of market failures, and the inefficiencies found. It goes on to describe and show consumer and producer surplus. It defines and describes private goods, public goods, the free-rider problem, and quasi-public goods. It shows how to find the optimal amount of public goods the government should produce using a cost-benefit approach and finishes with a discussion of government failure. The Last Word is about carbon dioxide emissions and different ways governments have tried to deal with air pollution. Market Failures Market failures Markets fail to produce the right amount of the product Resources may be Over-allocated Under-allocated LO1 Market failure occurs when the competitive market system produces the “wrong” amounts of certain goods or services, or fails to provide any at all. Resources are either over-allocated to the production of the good or under-allocated to the production of the good. Demand-Side Market Failures Demand-side market failures When it is not possible to charge consumers for the product Some can enjoy benefits without paying Firms not willing to produce since they cannot cover the costs LO1 Demand-side market failures occur because there are situations when it is impossible to charge all consumers, or any consumers, the price that they are willing to pay. A public fireworks display is an example where people don’t have to pay to enjoy the display. Private firms would be unwilling to produce outdoor displays as it will be impossible to raise enough revenue to cover production costs. Firm can’t prevent people from watching the fireworks if they didn’t pay. .
