Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th ed.
PART 3 Markets and
Welfare
Chapter 7 of 36 Consumers,
Producers, and the Efficiency of Markets
Section 16 of 16
…
In this chapter we have assumed markets
are perfectly competitive.
However, competition often is not
perfect
In some markets a single buyer or
seller or a small group may be able to influence market prices.
This ability to influence prices is
called “market power.”
Market power causes markets to be
inefficient because it keeps the price and quantity away from the supply and
demand equilibrium.
…
We also assumed outcome in a market only
matters to the buyers and sellers in that market.
But the decisions of buyers and sellers
sometimes affect people who do not participate in the market.
Pollutants emitted during production of
a product affect not only those who make and use the product but everyone who
breathes air or drinks water that has been polluted.
These “externalities” cause welfare in
a market to depend on more than the buyers’ value and the sellers’ cost.
…
Buyers and sellers do not heavily weigh these side effect
externalities when deciding how much to consume and produce.
This causes the equilibrium in a market to be inefficient
from the view of overall society.
Market power and externalities are main
components of a phenomenon called “market failure.”
Market failure is the inability of some
free markets to efficiently allocate resources for overall society.
When free markets fail government
regulation can decrease inefficient outcomes and increase overall society
economic efficiency and welfare.
(End of chapter 7 of 36)
… …
inefficient
outcomes
hikōritsuteki
kekka
非効率的結果
Congratulations!
7/36 = 19% of way to becoming a competent economist.
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