Market Failure Case Studies III

Definitions to consider in your analysis:

 Public good or private good  Merit or demerit good
(rivalrous and excludable?)  Welfare gain/loss
 Free-rider issue  MPB, MSB MSC, MPC,
 Positive or Negative externalities

1. Government Recommending HIV Testing - It is the goal of the US government to

reduce the incidence of HIV. In an attempt to reduce the incidence of HIV the US
government is recommending that all citizens between the ages of 16 and 65 get
an AIDS test.
a. Why is AIDS testing considered a Market Failure?
b. Diagram the market failure and corrective action.
c. How is advertising about AIDS testing a solution to this Market Failure?

2. Flu-shot Clinic Offered for BVSD Employees-The school district (and other
employers) often offer a low cost flu-shot clinic during the fall.
a. Discuss why immunizations are often considered a market failure.
b. Diagram the market failure and corrective action
c. How is the clinic a governmental action attempting to remedy this market
failure?

3. Colorado Voters Approve Cigarette Tax Measure - In 2004 Colorado Voters

approved a tax on cigarettes.
a. Explain why cigarette smoking may be considered a market failure
b. Diagram the market failure and corrective action. ( For ADDED WOW
FACTOR also discuss the impact of price elasticity of demand and total
revenue from this tax)
c. Discuss the government action to remedy this failure.

4. Voters Approve SCFD (Science and Cultural Facilities District) Again - Metro
Area voters value science and cultural opportunities. They have created a
taxpayer funded reserve that is used to subsidize cultural opportunities around the
Metro area. From the Denver Zoo to The Boulder Dinner Theater, to The Peanut
Butter Players, money from this fund supports these cultural endeavors.
a. Explain why support for the Arts is considered a response to Market Failure
b. Diagram the market failure and corrective action
c. Discuss the government action of the establishment of SCFD

5. Police Begin Anti-Drunk Driving Advertising Blitz - The Heat is On campaign is

an advertising campaign that Colorado Police Departments participate in during
times when alcohol consumption increases - New Years and Fourth of July are
two favorite holidays. Local news stations and billboards advertise the campaign.
(Of course the advertising campaign is followed-up with increased police sobriety
checkpoints throughout the state.)
a. Discuss why drinking and driving is a market failure.
b. Diagram the market failure and corrective action.
c. Explain the government action taken to remedy this.
6. Road Pricing a Success in Denver. In an effort to reduce traffic congestion on the
Highway 36, CDOT has instituted toll roads. Autos equipped with transponders
can pay to use the HOV lanes during peak travel periods.
a. Discuss why traffic congestion is a market failure.
b. Diagram the market failure and corrective action.
c. Explain the government action.

7. Farm Workers Exposed to Toxic Pesticides while Harvesting Strawberries–

a. Explain why field work may be an example of market failure.
b. Diagram the market failure and corrective action.
c. Discuss why the government would wish to fund it.

8. Ozone Depletion Caused by CFC’s - This headline was greeted with an

international effort to reduce the amount of CFC’s in the environment by
changing the way refrigerators were manufactured and eliminating aerosol
propellants.
a. Discuss why CFC pollution is a market failure
b. Diagram the market failure and corrective action.
c. Explain the government action used to reduce emissions.

9. Fracking is Suspected Cause of Contaminated Ground Water- Hydraulic

Fracturing is a process used to extract natural gas and petroleum by injecting
water and chemicals in to the earth
a. Discuss why extracting fuel by fracking would be considered a market failure.
b. Diagram the market failure and corrective action.
c. Explain the government action to address this market failure.

10. China imposes Cap and Trade Program – This is being instituted in China as a
solution to limiting green house gas emissions. (Europe currently uses this)
a. Discuss why green house gas emission is a market failure
b. Diagram the market failure and corrective action.
c. Explain the cap and trade system to address this market failure.

11. Investment in Robotic Technology Pays Off in the Operating Room - Robots in
the operating room were once considered something from Science Fiction Novels.
Robotic technology is having countless new applications.
a. Discuss why robotic technology is an example of market failure
b. Diagram the market failure and corrective action.
c. Explain a government action that could impact the market for robotics.

12. Apple Computer Provides Employees With Valuable Skills – at all levels
working for Apple Computers benefits employees. From software and hardware
engineers to working in the retail store, having Apple on your resume is a benefit.
a. Discuss why this training is an example of market failure
b. Diagram the market failure and corrective action.
c. Explain a government action that could impact the market for labor.