Market Failures

How/When Market can fail;

THE FOLLOWING NOTES ARE THE BASIC CONCEPTS IN THE MAINSTREAM (CAPITALISTIC, NEO-CLASSICAL) ECONOMICS.

Public Goods

  • Free Rider Problem: Cannot exclude those who do not pay
    • National Defense

External Costs

  • Some costs from production or consumption are not directly involved in the process
    • Pollution, Traffic congestion

Macroeconomic Stability

  • Inflation and unemployment might prevent the market from working adequately.

Natural Monopoly

  • Due to a huge economics of scale, it is more efficient for a single company to produce an entire quantity of a product
    • Water, Electricity

 

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