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Other market failures

16 十二月, 2015 - 15:14

There are other ways in which markets can fail to reflect accurately the social value or social cost of economic activity. Profit seeking monopolies, which restrict output in order to increase profits, create inefficient markets, and we will see why in the chapter on monopoly. Or the market may not deal very well with what are called public goods. These are goods, like radio and television service, national defence, or health information: with such goods and services many individuals can be supplied with the same good at the same total cost as one individual. We will address this problem in our chapter on government. And, of course, there are international externalities that cannot be corrected by national governments because the interests of adjoining states may differ: One economy may wish to see cheap coal-based electricity being supplied to its consumers, even if this means acid rain or reduced air quality in a neighbouring state. Markets may fail to supply an “efficient” amount of a good or service in all of these situations. Global warming is perhaps the best, and most extreme, example of international externalities and market failure.