Market Failures What causes a market to fail

Market Failures What causes a market to fail in free enterprise?

� Without regulation large industries can pay bosses millions of dollars instead of cutting cost. � A monopoly can cause artificial shortages and higher prices � It can also allow lobbyists to control politicians � It can demand tax breaks or threaten to move Inadequate Competition

� Does the same job get the same salary in different markets? Does a school secretary get paid the same as a secretary at an insurance company? � Do the same goods bring in the same amount for different producers? What about the consumer? � Bailout Bill and Wall Street Inadequate Information

�Land, capitol, labor, and entrepreneurs do not move to markets where returns are the highest �What happens when a military base closes? �What about Wild West World? Resource Immobility

� Can benefit or harm a third party � Negative externality is a harm, cost or inconvenience caused by others ◦ Baby crying on a plane ◦ Smell from sugar beets � Positive externality is a benefit received ◦ Price of you home goes up in college hill ◦ Restaurants business increases downtown Externalities

� � � Used by everyone and their value does not decrease because of one person added Market does not supply these goods Infrastructure is a great example What about Gas? Have you seen what is happening in the Southeast? A man pulled a gun in line. While the market is good at satisfying individual needs, it struggles to provide for the collective whole Public Goods

Which of these should be remain a public good and which should be a private good controlled by competition �Flood Control �National Defense �Country Roads �Fire Protection �Police Protection