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

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Presentation on theme: "Market Failures What causes a market to fail in free enterprise?"— Presentation transcript:

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

2 Inadequate Competition 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

3 Inadequate Information 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

4 Resource Immobility 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?

5 Externalities 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

6 Public Goods 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

7 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

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