Market Failure

Art & Craft Economics Readiness Programme

Lesson 2 Objectives

Able to indicate l label axis (benefit/cost) and (Qty of )

Able to draw MPB and MPC
Able to identify a source of market failure ( +ve or ve externality)
Assume (+ve ext)
Able to draw MSB is different from MPB (Divergence)
Able to draw MSC, which is the same as MPC

Able to identify Private equilibrium (Qf) and Social equilibrium (Qs)

Able to identify effect of market failure
Under-production versus under-consumption (QfQs)
Deadweight loss (ABC)

Able to do the same for ve ext

Able to show policies that restricts/expand quantity (QfQs)
Direct Provision (Qf to Qs)

Able to show policies that shift MPC/MPB to solve market failure

Moral Suasion (MPB to MSB)
Subsidies (MPC to MPC*)
Ban (Qs = 0)

Bonus
Able to show the difference between pivotal shifts vs parallel shifts.