Market_Failure_Detailed_Presentation1.pptx

Market failure

1. Market Failure: Causes, Types, and Key Concepts Economics Lecture Presentation Prepared by: [Your Name] Date: [Insert Date]

2. What is Market Failure? Formal Definition: A situation where the allocation of goods and services by a free market is not efficient. At least one person can be made better off without making anyone else worse off (Pareto inefficiency). Examples: Pollution from factories, lack of public goods, monopolies. Source: Varian, Intermediate Microeconomics; Mankiw, Principles of Economics

3. Causes of Market Failure Imperfect competition (monopoly, oligopoly) Public goods (non-excludable, non-rivalrous) Externalities (positive & negative spillovers) Information failure (asymmetric info) Missing markets (essential goods not provided)

4. Types of Market Inefficiency Allocative Inefficiency: Price ≠ Marginal Cost Productive Inefficiency: Resources wasted, not at lowest cost Equity Issues: Unequal distribution of wealth/income

5. Imperfect Competition Definition: Market structures where firms have market power. Monopoly → Single firm, sets high price, low output. Oligopoly → Few large firms, possibility of collusion. Monopolistic Competition → Many firms, differentiated products.

6. Monopoly vs Perfect Competition Perfect Competition: P = MC, higher output, lower prices. Monopoly: MR = MC, restricts output, charges higher price. Creates Deadweight Loss (loss to society). [Insert Graph: Monopoly vs Perfect Competition with DWL] Source: Pindyck & Rubinfeld, Microeconomics

7. Externalities – Negative Definition: Costs of production/consumption affecting third parties. Example: Air pollution, cigarette smoke. Problem: Market produces too much output. [Insert Graph: Supply (Private Cost) vs Social Cost]

8. Externalities – Positive Definition: Benefits of production/consumption spill over to others. Example: Vaccination, education, public parks. Problem: Market produces too little output. [Insert Graph: Demand (Private Benefit) vs Social Benefit]

9. Public Goods Definition: Goods that are non-excludable & non-rivalrous. Free-Rider Problem: People consume without paying. Examples: Streetlights, national defense, clean air. [Insert Diagram: Free Rider Issue Illustration]

10. Information Failure & Missing Markets Information Failure: Buyers/sellers lack full information. Examples: Used car market (hidden defects), fake medicines. Missing Markets: No provision of essential goods (flood insurance). Government may step in to regulate/provide.

11. Government Role & Policies Taxes & Subsidies: Correct externalities. Regulation & Standards: Safety, pollution control. Provision of Public Goods: Defense, healthcare, education. Competition Policy: Anti-monopoly laws. [Insert Graph: Tax shifting supply, Subsidy shifting demand]

12. Real-Life Examples Delhi Air Pollution → Negative Externality. Polio Vaccination Campaign → Positive Externality. Streetlights → Public Goods, free-rider issue. Jio & Airtel duopoly in Telecom → Imperfect Competition.

13. Summary & Takeaways Market failure = when markets alone do not achieve efficiency. Causes: Imperfect competition, public goods, externalities, info failures. Government plays a crucial role in correcting failures.

14. References / Bibliography Varian, H. R. (2014). Intermediate Microeconomics. Mankiw, N. G. (2020). Principles of Economics. Pindyck, R., & Rubinfeld, D. (2017). Microeconomics.