Market Failures

1. Market Failures

2. Practice Quiz 1.) What is a market? 2.) List the 4 major types of market structures discussed in class. 3.) There are more monopolies than oligopolies in our society. True / False 4.) This man wrote “Wealth of Nations” and was the father of modern economics. 5.) A market with lots of sellers and buyers and identical products is considered ____.

3. 6.) What is the one difference between perfect competition and Monopolistic Competition? 7.) List two of the four types of monopolies. 8.) What type of market structure do consumers want most? 9.) If you own a business what type of market structure do you want? 10.) Which of the four market structures discussed is the most common in our society?

4. Market Failures • Market Failure: • The market fails to sustain itself. • Usually because one of the following isn’t true: • Not enough competition • Buyers and sellers aren’t informed enough • Resources aren’t free to move from industry to industry • Prices don’t reflect the cost of production

5. Inadequate Competition: • Larger but fewer firms results in: • Waste of resources • Higher prices and reduced output • Political power • Inadequate Information: • Information on jobs and prices is hard to find. • How would this hurt the market? • Resource Immobility: • Land, labor, capital don’t easily move from one market to another. • Workers don’t want to move.

6. Externalities • Unintended side effect that either benefits or harms a third party not involved in the activity that cause it. • Seen as a market failure because their cost is not reflected in the market price.

7. Negative Externality: • Harm, cost or inconvenience suffered by a 3rd party because of actions by others. • Example: Airport built, homes around have to deal with the noise. • Positive Externality: • Benefit received by third party even though they have nothing to do with it. • Example: Because of the new airport restaurants sell more meals.

8. Pg 183 #2,3,4,5 Provide Examples. • Government solutions to market failures. • What are anti-trust laws? • Laws that protect against monopolies and protect competition. Try to prevent market failures caused by Inadequate Competition. • Prevent Price Fixing and Price Discrimination. • What is Public Disclosure? • Requirement of businesses to reveal info to the public. Prevents market failure caused by Inadequate Information.

9. Pop Quiz 2 • What is a market? • A market with 2-3 sellers and lots of buyers is an example of _____________. • A market with lots of sellers and lots of buyers and similar but not identical products is called ______________. • Anti-trust laws are designed to prevent which of the four market types. • When a business makes a third party pay the cost of production it is called an _____.

10. 6. Public Disclosure prevents which of the four reasons why markets fail? 7. A seller who sales their product to one retailer for less than others is practicing _________ . Ant-trust laws try to prevent this so there is an even playing field. 8.) List two of the 5 reasons why markets fail. 9.) An example of non-price competition would be: a. Giveaways b. Sponsorships c. Advertisements d. all of the above 10.) List two of the four types of monopolies.

11. Movie: Wal-mart 1.) List and explain 5 interesting things from the film. 2.) What market structure is Wal-Mart an example of? Explain. 3.) What are some positive and negative externalities of Wal-Mart? 4.) Is Wal-mart good for America? Explain with economic reasoning.