MARKET FAILURESMARKET FAILURES MARKET FAILURESMARKET FAILURES

FAILURES IN THE MARKET

THE MAIN FAILURES IN THE MARKETS ARE

• 1: PUBLIC GOODS• 2: EXTERNALITIES CAUSED BY

ECONOMIC ACTIVITIES• 3: IMPERFECT COMPETITION

MARKET FAILURES1: PUBLIC GOODS• ACTIVITY 1.- PUBLIC GOODS.

MARKET FAILURES

1: PUBLIC GOODS• Private goods are produced to be

consumed only by buyers or for whom they choose.

• Public goods are shared by a lot of people, being impossible to exclude anybody from its consumption.

MARKET FAILURES1: PUBLIC GOODSFEATURES:• Public goods are non-excludable.• Public goods are non-rivalrous.

MARKET FAILURES1: PUBLIC GOODSPublic goods are non-excludable.

It means that no one can be excluded from using the product. Examples: Think about the “mascletàs” or swimming on the beach. How can we require to pay for attending a fireworks display or for going swimming to the beach?

MARKET FAILURES1: PUBLIC GOODSPublic goods are non-rivalrous.

It means that the consumption of the good by one person does not reduce its availability for other persons to consume it. For example: If you buy a t-shirt nobody else can buy the same product, but if you go swimming on the beach you can not avoid that other people could swim as well.

MARKET FAILURES

1: PUBLIC GOODS• MARKETS do not usually respond

to social needs since they don’t provide profits to the companies and they are more interested in maximizing their own profitability instead of solving social problems.

EXISTENCE OF PUBLIC GOODS

• SOLUTION:• Intervention of the Public Sector: The Government has, therefore, the need

to provide the citizens with the public services they demand such as justice, defense, public health, education, etc. which have to be funded by taxes.

FAILURES IN THE MARKET

2: EXTERNALITIES CAUSED BY ECONOMIC ACTIVITIES

• ACTIVITY 2 Externalities

3:EXTERNALITIES CAUSED BY ECONOMIC ACTIVITIES

• Some business activities cause to the population external costs. They are known as negative externalities, which are not solved by the companies that have produced them, but instead by the whole community.

• Some examples can be: desforestation, climate change, etc.

EXTERNALITIES CAUSED BY ECONOMIC ACTIVITIES

• Nowadays, it is known that one of the most important problems in the environment is pollution

What can the government do to avoid or to reduce it?:

• Establishing maximun polution limits

• Implementing taxes• Giving pollution licences

EXTERNALITIES CAUSED BY ECONOMIC ACTIVITIES

• Activity 3.- Reading. Pages 80-82Business Studies Now. K. Borrington

and Peter Stimpson.

FAILURES IN THE MARKET

• 3: IMPERFECT COMPETITION.

• ACTIVITY 1 • ACTIVITY 3: Listening about

Microsoft company

4:IMPERFECT COMPETION

• Markets trend to be imperfects. Forms of imperfect competition markets, as you know, are the next:

• Monopoly• Oligopoly• Monopolistic competition

IMPERFECT COMPETITION

Intervention of the public sector:

• Competition Comission have to control the market because both dealing prices or shearing the market is forbidden