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Summary Mind-map for Market Failure Part I: (Causes of Market Failure: …
Summary Mind-map for Market Failure Part I:
Government's microeconomic objectives:
Economic efficiency
Allocative efficiency
Productive efficiency
Equity
Assumptions of Free Market in ensuring efficient allocation of resources:
Economic agents are rational
Consumers possess perfect information
Perfect competition exists
No third parties cost or benefit (externality)
Perfect mobility of factors of production
No government intervention
Market Failure: Market failure is a situation in which the market does not provide the right mix of goods or optimal amount of a particular good. As a result, the market is not allocating resources efficiently and society's welfare is not maximised.
Can be :
Complete
Partial
Causes of Market Failure:
Non-provision of public goods
Public good
Non-rivalry in consumption
Non-excludability
Government intervention:
Direct Provision
Presence of externalities
to know the various methods of govt. intervention, please refer to the externalities branch. thank you.
Under consumption of merit goods AND over consumption of demerit goods
Efficient allocation for merit and demerit goods not achieved by free market due to:
Presence of externalities? (causes over-consumption of demerit goods)
Information failure (causes both over-consumption of demerit goods AND under-consumption of merit goods)
Inequalities in distribution of income and wealth
Causes?
Factor endowment
Demand for output produced by factors
Globalisation
Government policy
Government intervention:
Progressive tax system
Advantages?
Limitations?
Transfer payments/subsidies
Advantages?
Limitations?
Minimum wage legislation
Advantages?
Limitations?
Education
Advantages?
Limitations?
Disadvantages for all the policies above:
May encourage tax evasion
Advantages?
Limitations?
May lead to disincentive to work harder
Advantages?
Limitations?
Government has to decide on whom to give and how much to give in terms of subsidies.
Advantages?
Limitations?
Put a strain on govt. budget
Advantages?
Limitations?
Market imperfections
Information failure
Government intervention:
Public education
Advantages?
Limitations?
Direct Regulation
Advantages?
Limitations?
Market dominance
Immobility of factors of production
!!!!! How do these factors lead to market failure? !!!!!
Terms: (definitions)
MPB
MPC
MEB
MEC
MSB
MSC
Externality:
Positive
Consumption
How it leads to market failure?
Production
How it leads to market failure?
Government intervention 1: subsidies.
On production
On consumption
Advantages/Limitations?
Government intervention 2: government provision.
Advantages?
Limitations?
Government intervention 3: legislation.
Advantages?
Limitations?
Government intervention 4: public education.
Advantages?
Limitations?
Negative
Production
How does it lead to market failure?
Consumption
How does it lead to market failure?
Government intervention 1: tax policy
Advantages?
Limitations?
Government intervention 2 : direct regulation
Advantages?
Limitations?
Government intervention 3: total ban
Advantages?
Limitations?
Government intervention 4 : tradable permits
Advantages?
Limitations?
Government intervention 5: public education
Advantages?
Limitations?
CASE:
Environmental degradation
Laws and regulations to curb undesirable activities
How do externalities (both negative and positive) lead to market failure?
Note: it is important to question yourself when you look through this mind-map. constantly ask yourself why something leads to its consequences, regardless positive or negative. only in this way, looking through this mind-map during your revision will help you.
Reasons for Government Failure:
Lack of/Poor Information
Bureaucracy and inefficiency
Lack of market incentives
Shifts in government policy
Healthcare in Singapore:
Subsidies
Medisave, Medishield, Medifund and Eldershield
Rules and Regulation
Other long-term measures
Evaluation of all these measures???!
Should healthcare provision be left to the market?
Difficulty of affording treatment
Difficulty of predicting one's future medical needs
Externalities
Patient ignorance
Ogliopoly
Dealing with traffic congestion in Singapore:
Introducing Electronic Road Pricing (ERP)
Managing car ownership
Improving public transport system
Providing information
The Kyoto Protocol:
The Kyoto Protocol as an international framework to tackle Global Warming, a significant Negative Externality of Production:
Method:
Emissions Trading
Clean Development Mechanism
Joint Implementation
Challenges/Criticisms the Kyoto Protocol face:
Political
More discord than accord?
Economic Debate
Tradable Permits
Carbon Tax
Enable more efficient carbon control than tradable permits
Imposition of carbon taxes spurs innovation
Raise governments' revenue
The road ahead?
Doha Amendment
2015 UN Climate Change Conference
Gini Coefficient in Singapore over the years?