Questions tagged [market-failure]

A situation in which a market fails to produce an efficient (i.e., welfare-maximizing) allocation.

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1answer
313 views

How penalties on repo fails work?

There are a couple of questions I have about imposing penalties on repo fails. Is the repo fail penalty imposed only on the seller of securities if it does not buy the securities back or also on the ...
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2answers
110 views

Calling 118 118 (UK) - A market failure?

Is the shocking cost of directory enquiry numbers in the UK a market failure, or the economy working perfectly well? EDIT: I know that proponents of free markets often like to blame over-regulation ...
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2answers
2k views

Is market failure the same allocative inefficiency?

From an IB Economics book (in the microeconomics section): The part in blue suggests market failure is the same as allocative inefficiency, but the part in red seems to suggest that market failure is ...
4
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1answer
85 views

How to improve the underperforming construction productivity by correcting its market failures?

Globally, labor-productivity growth in construction has averaged only 1 percent a year over the past two decades, compared with growth of 2.8 percent for the total world economy and 3.6 percent in the ...
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2answers
337 views

First order condition of log functions in general and interpretation

In the following, a first order condition for a log function is calculated. I know how the left part was calculated, however, I am a little bit confused where the gamma on the right site comes from ...
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1answer
117 views

Is there a comprehensive list of all market failures ever discovered?

I'm looking for a complete run down of all different kinds of market failures; Wikipedia has a list but I'm not sure if there might some obscure kinds of market failures that Wikipedia is missing. ...
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2answers
573 views

Providing subsidies affects Marginal Private cost but not Marginal Social Cost?

According to the theory that I'm seeing on the internet and in textbooks, when a government wants to correct underproduction due to a positive externality of production, they can decide to subsidize ...
2
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1answer
260 views

Asymmetric information assumption

This question isn't about asymmetric information per se but rather one of the assumptions. Consider a market for second hand cars; there are lemons (low-quality cars) and plums (high-quality cars). ...
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1answer
1k views

Why is there a deadweight loss in this lemons market?

Is there a deadweight loss in this used car market and why? On the plums side we can make a pareto improvement by exchanging information and matching 200 buyers and sellers who will gain from trade. ...
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0answers
23 views

Economics behind reverse auctions with occasional non-profiting suppliers

I was curious about the theory behind a reverse auction system where some suppliers act in a non-profit manner, namely, that their consideration of extra-auctions benefits of providing their service ...
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1answer
72 views

I don't understand how a graph would look like for this situation

If there is a negative production externality of agriculture which is water wastage, and the government provides a 100% subsidy to the farmers so they can buy irrigation gadgets to reduce water ...
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2answers
125 views

Does segregation make economic sense?

A central tenet of libertarianism is the notion of free association–being able to socialise and enter into contracts with people of your choosing, with the corollary of being able to refuse to do ...
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Market efficiency given asymmetric characteristics of securities markets

In an ideal market buyers and sellers in aggregate incorporate all available information and, as a result, the market price of an asset reflects its fair value. But in real securities markets there is ...
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1answer
335 views

Confusion regarding remedying negative externalities of consumption through taxation

This diagram in my textbook illustrates two solutions to a negative externality of consumption - here, the consumption of cigarettes. It states that MSC is shifted upwards by the specific tax. Since ...
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1answer
2k views

Understanding the gradient of the social cost curve in a market failure/ negative externalities diagram

Why does the social cost supply curve in a negative externalities diagram have a steeper gradient than the private cost to firms? I assumed it should only be shifted upwards as the negative social ...
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1answer
61 views

How does private benefit exceed social benefit?

I've done economics for 3 months only, so bear with me. If Social Benefit = Private Benefit + External Benefit Then how is it physically possible that private benefit could ever exceed social ...
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1answer
50 views

Does labor mobility create a certain type of market failure?

Oxford professor Ewart Keep writes in a paper titled Market Failure in Skills (p. 3) that For firms there is the problem of investment in staff who may leave taking their skills with them. ...
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3answers
116 views

Looking for a term that explains market participants that lie about their participation to gain access to said market

I'm Looking for a term that explains the behavior of a market participants that will lie or exaggerate how much or what they offer in order to gain access to a market that would otherwise be ...
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19 views

Similarities between microeconomic and macroeconomic failure. And, how microeconomic failures affect the economy at the macro level?

I can't make a relation between microeconomic and macroeconomic failures? I know they have differences. However, I want to know the effect of these two economic breakdowns on each other. I am meaning ...
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1answer
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CDO and Nonpositive Equity Questions

I have two questions about statements made in this video: https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/bank-bailout/v/bailout-2-book-value At 6:25, the video ...
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1answer
47 views

What caused "excess liquidity" in equity market, when CPI was deflationary at the same time period, which caused 'market crash in 1929' in USA?

To begin with, my question is NOT about the reasons of "the great depression" or "market crash" which led to the great depression. Rather, my question is about the reasons for the 'excessive cash ...
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31 views

What if the government impose both price control and supply restriction on the market?

Due to the virus outbreak, there is a surge in demand for mask and hand sanitizes. To prevent price hiking government impose a price ceiling on the products, however consumers are behaving irrational (...
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1answer
382 views

What would a negative externality diagram look like if the initial price is equal to 0 and then increased with tax?

The price of plastic bags in Scotland has been increased from free to 0.05 pounds sterling. How would I represent the negative externality decrease using a diagram in such a situation? This is what I ...
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19 views

Are there examples of businesses that profit from helping consumers coordinate better?

In economics, its often assumed that individuals are unable to coordinate. Moreover, its often assumed that one of the roles for the government is to help consumers coordinate. However, its also ...
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How does social cost and social benefit work?

I am really lost right now. I have a test tomorrow and I am stressing out. Whatever I look at for externalities, which could be my textbook, a website, notes from class, they all contradict each other....