efficiencies and inefficiencies. perfect competition and example from your
personal life. four sources of market
failure and examine how each led to an inefficient allocation of resources. example for each four sources of market failure.
Market inefficiencies occur when the free market does not allocate resources efficiently. Four sources of market failure are
1. Monopoly power: example would be telephone services, because there are only a few major providers they are able to charge a price higher than is optimal.
2. Negative externalities: This is when there is a large impact e.g. pollution that is not taken into account by the free market.
3. Property rights: when property rights are not properly established e.g. on inventions, then the free market will produce lower than the optimal quantity.
4. Public goods: fewer public goods than optimal may be provided, because of the lack of incentive for individual firms. E.g. Public Education.
Perfect Competition: While true perfect competition is rare, it can be seen when there are an infinitely large number of suppliers and demanders. In this case they will both act as price-takers. An example would be the wheat farming industry. But let me know if you need something more here. If you clarify the question a bit I might be able to help more.
Mar 4th, 2015
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