3.4 — Market Failures - Class Notes
Contents
Monday, October 26, 2020
Overview
Today we continue to consider how markets work and why (and when) they are so efficient at allocating resources and solving social problems. We take a crack at defining efficiency in a few ways: allocative, productive, Pareto, and Kaldor-Hicks efficiency. We then discuss Welfare Economics and I summarize three conditions about when markets are good & efficient: 1. Markets are competitive 2. Markets reach equilibrium 3. Markets do not have externalities
This leads us into a discussion of market failure, when markets aren’t efficient because something prevents the price system from working properly. We talk about several types of market failures: collective action problems, public goods, and externalities.
Readings
See today’s suggested readings.
Slides
Assignments: Exam 2 Corrections
Exam 2 results are on Blackboard. Please email me corrections by Sunday November 1.