Market Failure diagrams&definitions

1. Market Failure Diagrams and Definitions

2. What is market failure?

3. Sources of Market Failure Externalities Merit and Demerit Goods Public Goods Abuse of Monopoly Power

4. Positive Externalities Third parties benefit from the production of goods and services Third parties benefit from the consumption of goods and services Negative Externalities Third parties bear spillover costs of the production of goods and services Third parties bear spillover cost of the consumption of goods and services

5. Negative Production Externality

6. Negative Consumption Externality

7. Tax and Negative Production Externality

8. Tax on Producers and Negative Consumption Externality

9. Advertising to Shift Demand and Reduce Negative Consumption Externality

10. Correcting Negative Externalities of Production Legislation & Regulation Tradable Permits Tax

11. Correcting Negative Externalities of Consumption Legislation & Regulation Advertising Tax firm

12. Positive Production Externality

13. Positive Consumption Externality

14. Correcting Positive Externalities of Consumption Legislation Advertising Subsidies

15. Correcting Positive Externalities of Production Subsidy

16. Extension of Property Rights to Correct Negative Externalities Internalize Externality Market-based Appeal Offending Firms and third parties monitor progress

17. Public, Merit & Demerit Goods

18. Public Goods Non-Excludable Non-rivalrous Free riders Merit Goods Merit goods are under-consumed and underprovided Demerit Goods Demerit goods are overconsumed and overprovided

19. Positive externalities Lack of income Lack of knowledge Merit Goods subsidies government provision advertising regulation Solutions

20. Negative externality Lack of knowledge and/or apathy Demerit Goods tax advertising regulation Solutions

21. inefficiencies higher prices Monopoly Power legislation and regulation government ownership Solutions