1) Inadequate Competition • Inefficient resource allocation • Higher prices and reduced output • Economic and political power
Inadequate Competition • Oligopoly: market structure where a few very large sellers dominate the industry • Monopoly: market structure with only one seller of a particular product
Inadequate competition • Demand-side failures • Difficult to correct
2) Inadequate Information • Ch 5, Naked Economics • Information in the labor market • Seinfeld--imperfect information
3) Resource Immobility • Land, labor, and capital are difficult to move…they do not always respond to efficiently to changes in the market
4) Externalities An unintended side effect that either benefits or harms a third party not involved in the activity that caused it.
5) Public Goods • Products that are collectively consumed by everyone.
The Solution? Distorting the Market
The Market and the Government • Maintaining legal and social framework – Court system – Labor laws
Providing Public Goods and Services • Highways • Defense • Environmental concerns
Maintaining Competition • Anti-trust laws • Truth in advertising
Redistributing Income • Taxes • Medicare • Social Security
Correcting for Externalities • Environmental concerns
Stabilizing the Economy • Interest rates • Supply-side vs. Keynesian spending • Incentives