Market Failure
Adam Smith was awesome, no doubt. But even his invisible hand wasn't always 100% great. Smith's economic theories failed to account for what happens when supply and demand alone cannot make the market work with perfect efficiency. When this situation occurs, economists refer to it as "market failure."
There are five types of market failures:
There are five types of market failures:
- Inadequate Competition
- Inadequate Information
- Resource Immobility
- Externalities
- Public Goods
The video to the right discusses what an externality is. It's a bit of an esoteric concept, but it can often be thought of as the "spillover" costs associated with the purchase of a product. Not all externalities are negative, although we can often think of pollution as being a negative externality associated with the production of a given product. This is why nobody wants to live downwind of a factory.
For a more interesting and understandable look at Public Goods, check out the Tragedy of the Bunnies, but don't do it on a school computer, because it's blocked. |
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