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Chp 4: Market Failure - Coggle Diagram

- - - - Subsidy
        
        Direct subsidy to consumers to increase MPB
        Indirect subsidy to producers to lower MPC
        
        Opp cost, Difficult to assess exact monetary value of MEB at Qs
    - - Legistration
        
        Need to pay for constant checking
      - Direct Provision
        
        Government provides, can increase output to Qs
        
        Lack of profit motive, Opp cost
      - Joint Provision
        
        Government employs private firms to carry out parts of the provision (govt remains as the sole provider eg. LTA)
        
        Have profit motives from firms but difficulty in monitoring and maintaining quality
      - Education
  - - - Tradable Permits
        
        Firms that incur higher costs in reducing pollution will buy the permits while others will try to reduce pollution (efficient reduction of pollution)
        
        Dominant firms hogging the tradable permits leading to BTE
      - Taxation to increase MPC
        
        Difficult to assess exact monetary
        value of MEC at Qs
      - Quotas
        
        Prevent over production or over consumption
    - - Legistration
        
        eg. punishing improper disposal of chemicals
        
        No incentive to reduce pollution further than what is legal
      - Education, Campaigns
        
        Consumers/Producers will know about the long term costs to them, eg when polluting, the fish they eat in the future is poisonous
        
        Illustrated by leftward shift in MPC
        
        Time lag
  - - - Socially undesirable, has negative externalities and imperfect information where MPC perceived is lower than MPC actual
    - - Has positive externalities and imperfect info where MPB perceived is less than MPB actual
    - - Regulation
        
        Need to pay for constant checking
      - Public education
        
        Low cost, Does not affect the prices of merit and demerit goods but has time lag
  - - - Asymmetric information leads to one of the parties making suboptimal choices that leads to lower welfare
        
        eg. for health insurance, consumers with higher risks buy insurance while firms have to raise prices to cover their losses -> firms refuse to sell to unhealthy people
      - Measures
        
        Investing in information
        
        eg. hiring a mechanic
        
        Signals
        
        eg. car warranty signals the car is in good condition
        
        Screening
        
        eg. medical exam b4 insurance
        
        Law
        
        eg. industry standards
    - - Economic agents take greater risks than they normally would because the resulting costs can be shiffed onto the other party
        
        eg. a shop owner not preventing a fire from happening due to insurance
      - Measures
        
        Incentives
        
        Deductibles (initial amount of money the insured party needs to pay b4 the insurance company pays for the rest)
        
        Reward good track record
  - - - Job skill mismatch of labour
    - - High cost in moving labour between and within countries
    - - shows unemployment and productive inefficiency (within the PPF curve)