BUAD 5500, Topic 4
23
Market Failure and the Government Spring 2013 Topic 4
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Notes for Topic 4, BUAD 5500, Spring 2013
Transcript of BUAD 5500, Topic 4
Market Failure and the Government
Spring 2013Topic 4
Perfect competition
Many actors
Homogenous products
No barriers to entry or exit
Symmetric information
No external benefits or costs
Why is this desirable?
Consumer surplus
Why is this desirable?
Consumer surplus
Producer surplus
Why is this desirable?
Consumer surplus
Producer surplus
Market efficiency
Violation 1: externalities
Negative
Consumption
Production
Violation 1: externalities
Negative
Positive
Consumption
Production
Violation 1: externalities
Negative
Positive
Potential solutions
Fixed limits
Violation 1: externalities
Negative
Positive
Potential solutions
Taxation
Tax incidence
Violation 1: externalities
Negative
Positive
Potential solutions
Ownership and tradable rights
Violation 2: public goods
Non-rival
Non-excludable
Violation 2: public goods
Non-rival
Non-excludable
Solutions
Violation 3: asymmetric information
The market for lemons
Adverse selection
Violation 3: asymmetric information
The market for lemons
Adverse selection
Possible solutions
Secondary information markets
Forced consumption
Violation 4: imperfect competition
Monopoly power
Pricing decisions
MR and demand curve
Violation 4: imperfect competition
Monopoly power
Pricing decisions
Monopoly and PC outcomes compared
Dead weight loss
Violation 4: imperfect competition
Types of imperfect competition
Monopoly
Oligopoly
Monopolistic competition
Violation 4: imperfect competition
Types of imperfect competition
Sources of imperfect competition
Limited resource
Violation 4: imperfect competition
Types of imperfect competition
Sources of imperfect competition
Government policies
Patents
Copyright
Licensing requirements
Violation 4: imperfect competition
Types of imperfect competition
Sources of imperfect competition
Natural monopolies
Violation 4: imperfect competition
Types of imperfect competition
Sources of imperfect competition
Non-homogenous goods
Violation 4: imperfect competition
Solutions
Anti-trust
Approaches
Consumer harm
Strict size limits
“Chicago School”
Violation 4: imperfect competition
Solutions
Anti-trust
Market regulation
