Module 8: When Markets Fail

Source: https://pixabay.com/en/harvest-grain-combine-1523794/ Permission: Public Domain.

Overview

Have you ever been ripped off? It sucks, right? Well, it might be market failure. Do you not like having to pay so much for a certain speciality product where the manufacturer is the only one making the product; you have no choice and have to pay the price? Do you think your cable bill is too high? You might be right. Hate it when people drop their garbage off on country roads? All these issues constitute market failure and they generally impose costs on you, or to society in general.

When you hear the term market failure, you might imagine black Friday or some dramatic event. Market failure isn’t that sexy – it means only that the market fails to allocate goods and services efficiently. However, it can lead to serious problems that threaten sustainability and can impose unjust costs on unassuming parties. We will investigate the causes of market failure in this chapter, using a little dose of property rights. We will also review ways in which the government can help to solve or avoid problems arising from market failure, and paradoxically, how sometimes the establishment of a market can prevent or solve a market failure problem.

Learning Objectives

Upon completion of this module, you will be able to:

  1. Explain the loss to society that occurs from a monopoly (not the game).
  2. Describe the problem with information asymmetry.
  3. Identify external costs and benefits not accounted for in the market.
  4. Identify market inefficiency from the production of different types of goods.
  5. Recommend the best solution to address market failure.

Module Instructions

  1. Read Chapter 5 – sections about externalities.
  2. Read Chapter 9 – sections about monopolies.
  3. Read this module.
  4. Read the links and watch the videos hyperlinked in the module.
  5. Complete your choice and number of assessments at the end of the module.

Required Readings

Bland, A. (2016, June 29). Should Pacific Bluefin Tuna be listed as an endangered species? the salt. Retrieved from: http://www.npr.org/sections/thesalt/2016/06/29/483835875/should-pacific-bluefin-tuna-be-listed-as-an-endangered-species

Gregston, B. (2016, October 28). GMO and Monsanto-Bayer: global agribusiness' wild game of monopoly endangers food diversity. Retrieved from: https://peoplestrusttoronto.wordpress.com/2016/10/28/gmo-and-monsanto-bayer-global-agribusiness-wild-game-of-monopoly-endangers-food-diversity/

King, G. (2012, July 17). Where the buffalo no longer roamed. Smithsonian.com. Retrieved from: http://www.smithsonianmag.com/history/where-the-buffalo-no-longer-roamed-3067904/?no-ist

Lewis, M. (2013, October 22). Social cost of carbon: do the monetary benefits of CO2 emissions outweigh the costs? Retrieved from: http://www.globalwarming.org/2013/10/22/social-cost-of-carbon-do-the-monetary-benefits-of-co2-emissions-outweigh-the-costs/

Monsanto. (2016). Why does Monsanto sue farmers who save seeds? Retrieved from: http://www.monsanto.com/newsviews/pages/why-does-monsanto-sue-farmers-who-save-seeds.aspx

SaskPower. (2016, May 20). SaskPower and SaskEnergy apply for rate adjustments. News releases. Retrieved from: http://www.saskpower.com/about-us/media-information/saskpower-and-saskenergy-apply-for-rate-adjustments/

Taylor, T., & Greenlaw, S. (2014). Chapter 5: Externalities. In Principles of Economics: OpenStax. Available online: http://open.bccampus.ca/find-open-textbooks/?uuid=d7fed8c0-e900-4bef-b414-14f48122cba2&contributor=&keyword=&subject=Economics

Taylor, T., & Greenlaw, S. (2014). Chapter 9: Monopoly. In Principles of Economics: OpenStax. Available online: http://open.bccampus.ca/find-open-textbooks/?uuid=d7fed8c0-e900-4bef-b414-14f48122cba2&contributor=&keyword=&subject=Economics

Water Brothers. (2016). Dead Zones. Retrieved from: http://thewaterbrothers.ca/dead-zones/

Key Terms and Concepts

  • Club good
  • Common good
  • Consumptiveness
  • Deadweight loss
  • Exclusivity
  • Information asymmetry
  • Marginal revenue
  • Marginal social benefit
  • Marginal social cost
  • Market failure
  • Monopoly
  • Negative externality
  • Perfect competition
  • Positive externality
  • Private good
  • Public good
  • Rivalry
  • Welfare loss