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## Hot answers tagged market-failure

6

The $\gamma$ on the RHS comes from applying chain rule when differentiating the second term with respect to $a_i$. Regarding elasticity, note that with a differentiable function $f$, the ratio $f'(x)/f(x)$ can be interpreted as the percentage change in the value of $f$ around $x$. So isolating $\gamma$ from the FOC, you'll get an expression for elasticity, ...

6

It just comes from the derivative of profit function. I assume that $a_i$ is the choice variable here so the derivative of $\pi$ wrt $a_i$ is (step by step): \frac{\partial \pi}{ \partial a_i} = \frac{\partial \pi}{ \partial a_i} [ \ln R(a_i) ] + \frac{\partial \pi}{ \partial a_i} [ \ln N_i(\gamma a_i, \gamma a_{-i}) ] \\ = \frac{1}{ R(a_i)} R'(a_i) ... 4 In the US, a fail penalty is applied on the failure to deliver securities in a US Treasury or Agency transaction. This applies to any trade in these securities , including a simple cash trade , or the opening leg of a repo, or the closing leg of a repo. The intent of the system , first introduced in 2012, was to clean up fails in the Marketplace by ... 3 It simply depends on the shape of the marginal external damages. If the total damages are linear in output, then the marginal damages are constant, and the gradient of the marginal social cost is the same as that of the marginal private cost. If the total damages are quadratic (or some other form with increasing marginal damages), the marginal social cost ... 3 In this setting, both buyers and sellers are usually assumed to be risk neutral. So adding an additional layer of uncertainty over seller's valuation is not really going to change the model's prediction in any "qualitative" way, in the sense that market unraveling (perhaps only partial in this case) is still an inevitable outcome, even though the exact ... 2 You can calculate the total social surplus (= CS + PS) in this equilibrium and compare it to the social surplus in the efficient allocation of cars. Equilibrium allocation The equilibrium (under asymmetric information) has price equal to 12000. Thus, in the lemon's market, \begin{align} CS_L&=(8000-12000)\times1000=-4000000\\ PS_L&=\frac12\times(... 2 The amount of external cost is determined by the level of production in this framework. If the producers receive a subsidy the MPC shift to the right as you point out. That also means that for each level of cost production increases and therefore the external benefits are less, that is, they are internalizised. If the subsidy is enough the external ... 2 I suggest that the graph could be improved in two ways (apart from the point, which you seem to recognise, that the upward-sloping line labelled MSB should be labelled MPC (marginal private cost)). Firstly, the inclusion of the vertical arrow labelled subsidy rather suggests that the vertical distance between the two marginal cost curves equals the amount of ... 1 The social cost of a product is the value of the resources that are consumed for its production, irrespective of property rights (and a "negative externality" is nothing else than resources consumed, e.g. a contaminated river due to pollution from production reduces the "natural resources" of society etc). By subzidizing the product you do not affect the ... 1 Models have been constructed that show, at least, how discrimination can rationally self-perpetuate. For instance, in The Illusive Quest for Growth, William Easterly describes a model in which employers maintain discrimination through rational expectations, implying that government policy is needed to disturb the perverse equilibrium (paraphrased from "... 1 In many models, we assume that firms simply want to maximize profits, and there are no externalities. If these assumptions are true, then a free market will be racism-free, gender-blind etc, etc. However, this is not the case in the real world. People that own and operate firms not only want to maximize profits, often they also have all kinds of biases, ... 1 The payoff of an individual or a group is given by\text{thier benefits}-\text{their costs}.$$Let's work with an example of car ownership. It yields two benefits for me: I can use it to go to work (which is worth w) and I can use it to go shopping (which is worth s to me). Owning the car is also costly: fuel and maintainence cost c. Thus, the net ... 1 The net social welfare can be written as W=B-C, where W is total welfare, B is the benefit, and C is the cost. Suppose we are interested in thinking about a negative externality that implies a social cost of E. Then we would have$$W=B-(C+E)=B-C-E. Imagine if, instead of viewing this as a social cost, we interpret the externality as reducing ...

1

Well, from the same paper (p. 5), it's not all that clear that the theory translates to actual market failure: There is very little reliable data on either the scale of poaching or its impact upon employers’ training decisions – despite this being frequently adduced by policy makers as the prime cause of market failure in training. One of the few ...

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What about a meme agent? (e.g. an agent mimics the qualities of another agent to "fool" regulators, competitors, consumers.)

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When there was only one telephone service supplier, BT directory enquiries used to be free. If you did not know the number of who you wanted to call, you could not call. Once you got the number from the phone book or directory enquiries, you could make the call and would be charged for it - instant payback for the phone company. After the telephone market ...

1

Market failures often arise due to deviations from the classical assumptions of economics (e.g. Perfect Competition, Perfect Rationality, Perfect Information, Unbounded Computational Capacity, ...etc). There are lists of well-documented and studied market failures and the factors driving them (monopoly is sometimes considered a case of market failure); ...

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In this context 'market' usually means some allocation mechanism. For example free market, or a market where someone has monopoly power. Allocation of goods and resources can be done in other ways: e.g. you can divide all resources evenly among production processes and all goods evenly between consumers. This will generally result in allocative inefficiency (...

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