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Market failiure, Public goods, save my exams - Coggle Diagram

- - - - This is market failiure
        
        Causes of market failure
        
        externalities
        
        occurs when there is an external impact on a third party not involved in the economic transaction between the buyer and seller
        
        it impacts stakeholders in a community in either a positive or negative way
        
        example
        
        a music festibal benefits local residents and businesses
        
        can be devided into
        
        external benefits/positive externalities
        
        external costs/negative externalities
        
        spillover costs that negatively impact third parties, resulting from producing or consuming a good or serice
        
        External costs
        
        4 more items...
        
        Positive externalities
        
        Positive externalities of production
        
        POsitive externalities of production are sometimes created during the production of a good/service
        
        1 more item...
        
        The market is failing due to under-provision of these goods/services as only the private benefits are considered by the producers and not the external benefits
        
        Positive xternalities of consumption
        
        Positive externalities of consumption are created during the consumption of a good/service (merit goods)
        
        1 more item...
        
        The market is failing due to under-consumption of these goods/services as only the private benefits are considered by the consumers and not the external benefits
        
        Merit goods
        
        Merit goods are beneficial to society but consumers under-consume them as they do not fully recognise the private or external benefits.
        
        exp:vaccinations education and electric cars
        
        They are under-provided in a market and their consumption generates both private and/or external benefits
        
        Public goods
        
        goods beneficial to society but would be under-provided by a free market
        
        Happens when there is little opportunity for sellers to make profits from these goods/services
        
        no-exlucable and non-rialrous
        
        Common poul resources
        
        Resources with no private ounership , they are collevtively shared and are finite in consumption
        
        non-excludable (anyone can access them without having to pa) and rivalrous (resources are finite (can be used up))
        
        Tragedy fo the commons
        
        Occurs whencommon pool resources are usedin poduction in an unsustainable way.
        
        exp: ocean fishing, common grazing land, water sources
        
        IN each case, from society's point ov view, ther eis a lack of alliocation of resources
        
        Over-provision of goods which are harmful (demerit goods)
        
        under-provision of goods that are beneficial (public goods and merit goods) , meaning it is an under-allocated resource
        
        In a case of common pool resources there is an overuse of a finite resource
  - - - Marginal private cost (MPC)
        
        the additional cost from consuming or producing one additional unit of output
      - Marginal social benefit (MSB)
        
        the benefit to society recieved frm the consumption or production of one additional unit of output.
        
        private benefit + external benefits
      - Marginal private benefit (MPB)
        
        The additional benefit received from the consumption or production (output) of one additional unit of output
      - Marginal social cost (MSC)
        
        The cost of society of the consumption or production of one additional unit.
        
        private cost + external costs
    - - Occurs when marginal social benefit (MSB) = marginal social cost (MSC)
      - no market failiure at this point
    - - MSC=MSB
      - welfare of a citizen is maximised
      - https://cdn.savemyexams.com/cdn-cgi/image/f=auto,width=750/https://cdn.savemyexams.com/uploads/2022/12/2-8-1-socially-optimum-output.png
        
        the demand curve is D=MSB, it represents social benefit
        
        Socially optimum level of output at Qopt, costs=benefits
        
        the supply curve is S=MSC, it represents social cost
        
        There is allocative efficiency in Qopt as it is where community surplus (consumer + producer surplus) is maximized.
        
        Y-axis= csts/enefits
- - - - The government funds advertising and education programs to educate the public on the dangers
    - - A mechanism which provides firms who emit greenhouse gases the option to buy a permit to pollute when it is required.
    - - The government creates new laws (e.g. no single-use plastic bags) and then creates an agency (e.g. environment agency) to regulate those laws.
    - - These are useful for issues which are global in nature and require a globally coordinated response e.g. COP 27 agreements on climate change
    - - The government gives firms a fixed amount of money per unit produced in order to lower production costs and/or increase output of the product.
    - - Governments will often choose to directly provide certain goods/services (merit goods) in order to ensure that everyone in society has the same access.
    - - A tax that producers who emit greenhouse gases have to pay.
    - - Occurs when communities come together to take control of common pool resources in an attempt to deal with the negative externalities associated with their use
    - - A Pigouvian tax is a tax placed on a product with harmful side effects (named after Arthur Pigou), so as to increase its price and reduce the quantity demanded or the supply.
- - - - Govrnments will provide public goods wen they see them as crucial to society
      - adv
        
        The only way to produce pure public goods is for the government to provide them.
        
        When the government provides a public good, it is more likely to make decisions in the public interest than private-sector businesses that aim to make a profit.
        
        Governments are more likely to provide quasi-public goods near the socially efficient output.
      - dis
        
        The cost of providing state-funded and managed public goods is extremely high, and the government faces a significant opportunity cost in other areas of expenditure.
        
        Some people question the efficiency of state-run organisations that provide public goods.
    - - Governments can set up and fund the provision of public goods, which can then be managed by private sector organisations.
      - Adv:
        
        This approach benefits the public by ensuring the provision of public goods, but operational management may be more efficient than government-managed provision.
        
        Private sector provision means political decision-making is less likely to take place in the management of the public good.
      - dis:
        
        The government still needs to pay the cost of setting up the provision of the public good, which will come with an opportunity cost.