Kinh tế vi mô FTU - Lecture 15

Motivation: Asymmetric information Microeconomics July 1, 2020 1 / 29 Chapter 8: Market failures and the role of the government July 1, 2020 Microeconomics July 1, 2020 2 / 29 Content 1 Market failures 1 2 3 4 5 2 Imperfect competition Externalities Public goods Social justice assurance (Optional) Asymmetric information (Pindyck and Rubinfield, Microeconomics, 8th) The role of government in market economy (Reading at home) 1 2 3 The economic function of government The main economic engine of government The method of economic regulation Microeconomics July 1, 2020 3 / 29 Market failures Market failure A situation in which the market on its own fails to produce an efficient allocation of resources. Competitive markets fail for four basic reasons: Imperfect competition Externalities Public goods Asymmetric information Microeconomics July 1, 2020 4 / 29 Imperfect competition Recall welfare analysis using CS, PS and DWL. In imperfect competition markets: price is higher than in perfect competition market. output is produced less than in perfect competition market. Microeconomics July 1, 2020 5 / 29 Externalities Externalities are the uncompensated impact of one person’s actions on the well-being of a bystander. Negative and positive externalities An externality arises when a person engages in an activity that influences the well-being of a bystander but neither pays nor receives any compensation for that effect. If the impact on the bystander is adverse, it is called a negative externality. If it is beneficial, it is called a positive externality. Microeconomics July 1, 2020 6 / 29