Section 3: Market Failures and Externalities

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Section 3: Market Failures and Externalities

Public goods are what some economists have called market failure.

Market Failure- a situation in which the free market, operating on its own, does not distribute resources efficiently.

The 4 steps to market failure or public good.

1. Public Need- A need that the public needs and is causing a problem

2. Cost and Benifits- Overlooking to see how much a product can cost and the benifits it gives to the general project.

3. Who Pays?- The governement pays by setting aside tax money for public services or goods for people that cannot afford the substanial cost. Ex= Farmer cant afford to make a bridge, so the government assists by giving tax dollars to the farmers. The government will make more money in the end because of taxes.

4. Market Failre- Everyone doesentnecessary pay for it, but everyone can use it. The resources are distributed evenly.

Positives and negatives externities of creating a bridge.

Postives: State gains revenue from tolls. Bridge can be used by vacationers and other travelers. Increased traffic means more business for nearby gas stations and restaurants.

Negatives: Construction and traffic increase noise in the area. Grease and oil from bridge contribute to water pullution. Bridge may interrupt spawning routes of local fish.

The market fails because it cannot measure the true cost or benefits of production or consumption. Externalities are the costs of benefits of production or consumption that are experienced by third parties, but not by the producers and consumers who cause them.

4 steps to Market Failure or Public Good

Market Failre- Everyone doesentnecessary pay for it, but everyone can use it. The resources are distributed evenly.

Who Pays?- The governement pays by setting aside tax money for public services or goods for people that cannot afford the substanial cost. Ex= Farmer cant afford to make a bridge, so the government assists by giving tax dollars to the farmers. The government will make more money in the end because of taxes.

Cost and Benifits- Overlooking to see how much a product can cost and the benifits it gives to the general project.

Public Need- a need that a somone in the general public needs to sucessfully help there business.