Section 3: Market Failures and Externalities

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Section 3: Market Failures and Externalities

Public goods are what some economists have called market failure.

Market Failure- a situation in which the free market, operating on its own, does not distribute resources efficiently.

The 4 steps to market failure or public good.

1. Public Need- A need that the public needs and is causing a problem

2. Cost and Benifits- Overlooking to see how much a product can cost and the benifits it gives to the general project.

3. Who Pays?- The governement pays by setting aside tax money for public services or goods for people that cannot afford the substanial cost. Ex= Farmer cant afford to make a bridge, so the government assists by giving tax dollars to the farmers. The government will make more money in the end because of taxes.

4. Market Failre- Everyone doesentnecessary pay for it, but everyone can use it. The resources are distributed evenly.

Positives and negatives externities of creating a bridge.

Postives: State gains revenue from tolls. Bridge can be used by vacationers and other travelers. Increased traffic means more business for nearby gas stations and restaurants.

Negatives: Construction and traffic increase noise in the area. Grease and oil from bridge contribute to water pullution. Bridge may interrupt spawning routes of local fish.

4 steps to Market Failure or Public Good

Market Failre- Everyone doesentnecessary pay for it, but everyone can use it. The resources are distributed evenly.

Who Pays?- The governement pays by setting aside tax money for public services or goods for people that cannot afford the substanial cost. Ex= Farmer cant afford to make a bridge, so the government assists by giving tax dollars to the farmers. The government will make more money in the end because of taxes.

Cost and Benifits- Overlooking to see how much a product can cost and the benifits it gives to the general project.

Public Need- a need that a somone in the general public needs to sucessfully help there business.