TAILIEUCHUNG - Lecture Essentials of Economics: Chapter 9 - Bradley, Cynthia Hill

Chapter 9 "Government intervention", after reading this chapter, you should be able to: Define what “market failure” means, explain why the market underproduces “public goods.”, tell how externalities distort market outcomes, describe how market power prevents optimal outcomes, define what “government failure” is. | Chapter 9 Government Intervention Laissez Faire Adam Smith coined the phrase laissez faire in the late 1700s as a doctrine of “leave it alone,” or nonintervention by government in the market mechanism. Adam Smith wanted to establish the presumption of market efficiency. 9- Laissez faire represents a market where government is “hands off” in terms of intervention. Market Failure The market mechanism may fail to provide the optimal mix of output: The optimal mix of output is the most desirable combination of output attainable with existing resources, technology, and social values. 9- Because the free market may not always provide the best results, government involvement may be needed to correct this. Market failure implies that the forces of supply and demand have not led to the best point on the production possibilities curve. It also establishes a basis for government intervention. The Nature of Market Failure 9- When the free market fails, society may call upon government to intervene. Sources of Market Failure There are four specific sources of microeconomic market failure: Public goods. Externalities. Market power. Inequity. 9- Market Failure I: Public Good A public good is a good or service whose consumption by one person does not preclude consumption by others. Examples include national defense and flood-control dams. 9- Once public goods are available, they are available to everyone regardless of who pays for them. The Free-Rider Dilemma A free rider is an individual who reaps direct benefits from someone else’s purchases (consumption) of a public good. 9- It is someone who “tags along” and doesn’t pay for the good. The problem is that everyone will want to use the good “for free,” so nobody will step up and pay for its production. Government Role in Public Goods Everyone would wait for someone else to pay. Thus, the market would underproduce public goods. Government steps in and causes public goods to be .

• Kinh tế học
• Essentials of Economics
• Lecture Essentials of Economics
• Government intervention
• Laissez faire
• Market failure
• External benefits
• International economics
• Product markets
• Economic perspective
• Marginal analysis
• Inverse relationships
• Independent variables
• Market system
• Circular flow
• Market equilibrium
• Law of demand
• Exchange rates
• Preset prices
• Price elasticity of demand
• Elasticity of demand
• Market failures
• Public goods
• Business population
• Corporation advantages
• Pure competition
• Market models
• Pure monopoly
• Monopoly demand
• Monopolistic competition
• Game theory overview
• Economic growth
• Gross domestic product
• Business cycles
• Economic cost of unemployment
• Aggregate demand
• Aggregate supply
• Fiscal policy
• Evaluating fiscal policy
• Financial institutions
• Federal Reserve
• Interest rates
• Monetary policy
• International trade
• Wage determination
• Labor demand
• Income inequality
• Poverty trends
• Opportunity cost
• Rational action
• Factors of production
• Optimal Mix
• Investment goods
• Government services
• Product market
• Locating markets
• Individual demand
• Market supply
• Consumer demand
• Sociopsychiatric explanation
• Total utility
• Marginal utility
• Supply decisions
• Marginal physical product
• Total profit