Presentation on theme: "Holiday Work Over the holiday I would like you to get examples of demerit or merit goods…. Take photos of examples… maybe films…. Pick one….. Ideas for."— Presentation transcript:
1 Holiday WorkOver the holiday I would like you to get examples of demerit or merit goods…. Take photos of examples… maybe films….Pick one…..Ideas for reducing consumption of demerit goodsOr increasing consumption of merit goodsOr this could be positive and negative externalities.
2 Introduction to Market Failure Изъяны Рынка Внешние Эффекты и рыночная эффективность
3 Market Failure рыночная неэффективность Definition: Where the market mechanism fails to allocate resources efficiently
4 Market FailureSocial Efficiency = where external costs and benefits затраты и выгоды are accounted forAllocative Efficiency = where society produces goods and services at minimum cost that are wanted by consumers WHO GETS THE GOODSTechnical Efficiency = production of goods and services using the minimum amount of resources WITH WHAT ARE GOODS PRODUCEDProductive Efficiency = production of goods and services at lowest factor cost HOW ARE THE GOODS PRODUCED
5 Or put simply Markets can function inequitably Markets can function inefficiently
7 Market Failure Market Power: Monopolies and oligopolies Collusion Price fixingSupernormal profitsBarriers to entry
8 Imperfect Knowledge: Asymmetry of Information Consumers do not have adequate technical knowledgeAdvertising can mislead or mis-informDecisions often based on past experience rather than future knowledge
9 Market Failure Goods/Services are Differentiated Branding Designer labels - they cost three times as much but are they three times the quality?Labelling and product informationWhich one is the ‘quality’ item and why?
10 Private Goods i.e. goods that can be identified as your possession. You have ‘Property Rights’ права собственности over that good.It is therefore ‘excludable’ i.e. you can prevent other people from using it.
11 Tragedy of the Commons Трагедия общих земель Because it is difficult to establish property rights there is the likelihood that this resource will be overused and destroyed.
19 Market Failure Public Goods Markets would not provide such goods and services at all!e.g. police, street lighting,Non- excludability неисключительностьPerson paying for the benefit cannot prevent anyone else from also benefiting - the ‘free rider безбилетники problem’A non- excludable good?Would you pay for this?
20 Merit Goods & Demerit Goods Consumption of merit goods gives social benefits or imposes social costs.In groups of two, think of examples of each and why….
21 Merit Goods nurseries, schools, colleges, universities could all be provided by themarket but would everyonebe able to afford them?Schools: Would you pay if the statedid not provide them?
22 Demerit Goods De-Merit Goods Society suffers from the consumption of these goods.Goods and services provided by the market which are not in our best interests! examplesTobacco and alcoholDrugsGambling
23 De-merit goodsMerit goods are ‘good’ for you. De-merit goods are thought to be ‘bad’ for you
29 Activity 5 minutesHow can a government limit the consumption of demerit goods?How can the consumption of merit goods be encouraged?Think of as many ways.
30 Market Failure External Costs and Benefits External or social costs The cost of an economic decision to a third partyExternal benefitsThe benefits to a third party as a result of a decision by another party
31 Market Failure External Costs e.g. Pollution traffic congestion, environmental degradationdepletion of the ozone layer
32 One ton of industrial wastes per resident in Pavlodar oblast Tengri News March 2013
35 Marginal Cost Curve Marginal cost curves are U shaped. The cost of producing the extra item is considered to fall at firstthen it will riseThis is because of economies and then diseconomies of scale
36 Marginal Benefit Curve Downward slopingI.e. the benefit from consuming the extra unit of output will declineI.e. the value the consumer puts on the extra good will fall and the quantity increases.
37 Внешние Эффекты Производство оптимумPriceMSC + MPCПредложение (частные издержки)£12Издержки загрязнения£7£5Socially efficient output is whereMSC = MSBCпрос частная ценность80100Quantity Bought and Sold
38 Market Failure External benefits by products of production and decision making that raise the welfare of a third party
39 External Benefits Price Socially efficient output is where MSC = MSB Value of the positiveexternality (Welfare Loss)$10Social Benefits$6.50Socially efficient outputis whereMSC = MSB$5MSBMPB100140Quantity Bought and Sold
40 Market Failure Measures to Correct Market Failure State Provision Extension of property rightsTaxationSubsidiesRegulationProhibitionPositive DiscriminationRedistribution of Income
41 HomeworkGyms and sports halls are merit goods…. With the help of an appropriate diagram, explain why merit goods are often underprovided.(8 marks)orWith the help of an appropriate diagram, explain how taxation can reduce the negative externalities (pollution) caused by factories.