ECO101 Lecture 05

ECO101 - Week 05 Failure.pdf

Intro

• Test
  • Multiple choice
    • 4 types, elastic and inelastic cross
  • Calculations
• What is Market Failure

Externality

• Externality#↑ ECO101 Lecture 05
• Merger - Internalizing the Externality
• Coase Theorem
• Pigouvian Subsidy for Vaccination

Public Goods#↑ ECO101 Lecture 05

Common Goods

• Rivalrous Good but non-excludable.
• Example:
  • Library
    • Solution
      • Assign Property Rights, then bargain if not
      • Turn it Rivalrous Good and Excludable Good, Private Goods
  • QEW
    • Eventually so many people are using this common good, that it's not worth using anymore.
  • Common Greens
    • Anyone could take cows to common pastures
    • Each cow raising would add more and more to use up the pasture.
    • All the grass was gone, animals gone.
    • Common resource is finished
    • Solution?
      • Turn the Common Goods into Private Goods
• Graphed Example:
  • Commuting time would be less if only 10 people drove cars
  • $n=60$ total
  • $D=20$ cars
  • $T=20\cdot 20+40\cdot 20=1200$ minutes to get downtown
  • $D^{\star }=10$
  • $T=10(10+\frac{1}{2}(10))+50(20)$
  • $T=1150$
• Similar to Externality
• Quota
  • QEW
    • Quota to the highway by way of lights to enter
• Tax
  • 407
    • Tax to enter the highway.
    • Ensures good quantity
• Market Failure can be solved by quota or tax

Information

• Asymmetric Information can cause markets to fail.