Categories of Market Failures Flashcards
Market Power
The Invisible Hand works best when markets are competitive.
Monopolies give firms market power; this is no longer perfect competition
Equity
Markets are blind to fairness
ex. who would get vaccines if they allocated through markets.
Public Goods
Non exclusive consumption
ex. who would contribute to paying for roads if one person is already paying?
Negative Externalities
Transaction imposes costs on third parties
ex. why should firms care about pollution they emit?
What To Do: Market Power
Control market concentration (monopolies)
” “ Equity
Non-market allocation mechanisms
Rationing
Price control
” “ Public Goods
Non-market allocation mechanisms (collect taxes & have the government provide the good or private membership)
” “ Negative Externalities
Command and control regulation
Pigouvian Taxes
Marketable permits
