Economics Market Failure Notes

Market failure has become an increasingly important topic for students at A level .There is a clear economic case for government intervention in markets where some form of market failure is taking place. Government can justify this by saying that intervention is in the public interest. Basically market failure occurs when markets do not bring about economic efficiency.

Government intervention occurs when markets are not working optimally i.e. there is a Pareto sub-optimal allocation of resources in a market/industry. In simple terms, the market may not always allocate scarce resources efficiently in a way that achieves the highest total social welfare.

EXAMPLES OF POTENTIAL MARKET FAILURE

There are plenty of reasons why the normal operation of market forces may not lead to economic efficiency.

Public Goods

Public Goods not provided by the free market because of their two main characteristics

Non-excludability where it is not possible to provide a good or service to one person without it thereby being available for others to enjoy
Non-rivalry where the consumption of a good or service by one person will not prevent others from enjoying it
Examples: Street lighting / Lighthouse Protection, Police services, Air defence systems, Roads / motorways, Terrestrial television, Flood defence systems, Public parks & beaches

Because of their nature the private sector is unlikely to be willing and able to provide public goods. The government therefore provides them for collective consumption and finances them through general taxation.

Merit Goods

Merit Goods are those goods and services that the government feels that people left to themselves will under-consume and which therefore ought to be subsidised or provided free at the point of use.

Both the public and private sector of the economy can provide merit goods & services. Consumption of merit goods is thought to generate positive externality effects where the social benefit from consumption exceeds the private benefit.

Examples: Health services, Education, Work Training, Public Libraries, Citizen's Advice, Inoculations

Monopoly

Few modern markets meet the stringent conditions required for a perfectly competitive market. The existence of monopoly power is often thought to create the potential for market failure and a need for intervention to correct for some of the welfare consequences of monopoly power.

The classical economic case against monopoly is that

Price is higher and output is lower under monopoly than in a competitive market
This causes a net economic welfare loss of both consumer and producer surplus
Price > marginal cost - leading to allocative inefficiency and a pareto sub-optimal equilibrium.
Rent seeking behaviour by the monopolist might add to the standard costs of monopoly. This includes high (possibly excessive) amounts of spending on persuasive advertising and marketing.
Libenstein's X-inefficiency may also result if the monopolist allows cost efficiency to drop. An upward drift in costs because of a lack of effective competition in the market-place can lead to consumers facing higher prices and a reduction in their real standard of living
Externalities

Any exam question on market failure must make some reference to externalities. What are the potential market failures arising from externalities?

The social optimum output or level of consumption diverges from the private optimum.

Main problem is the absence of clearly defined property rights for those agents operating in the market. When property rights are not clearly defined, market failure is likely because producers & consumers may not be held to account

Don't forget that positive externalities can also justify intervention if goods are under-consumed (social benefit > private benefit)

Inequality

Market failure can also be caused by the existence of inequality throughout the economy. Wide differences in income and wealth between different groups within our economy leads to a wide gap in living standards between affluent households and those experiencing poverty. Society may come to the view that too much inequality is unacceptable or undesirable.

Note here that value judgements come into play whenever we discuss the distribution of income and wealth in society. The government may decide to intervene to reduce inequality through changes to the tax and benefits system and also specific policies such as the national minimum wage

GOVERNMENT INTERVENTION AND MARKET FAILURE

Government intervention may seek to correct for the distortions created by market failure and to improve the efficiency in the way that markets operate

Pollution taxes to correct for externalities
Taxation of monopoly profits (the Windfall Tax)
Regulation of oligopolies/cartel behaviour
Direct provision of public goods (defence)
Policies to introduce competition into markets (de-regulation)
Price controls for the recently privatised utilities


http://tutor2u.net/economics/content/topics/marketfail/market_failure.htm

Public Utility

A firm providing essential services to the public, such as water, electricity and postal services, usually involving elements of NATURAL MONOPOLY. Food is essential, but because it is provided in a competitive market, food SUPPLY is not usually regarded as a public utility. Because public utilities have some MONOPOLY power, they are typically subject to some REGULATION by GOVERNMENT, such as PRICE controls and perhaps an obligation to provide their services to everybody, even to those who cannot afford to pay a market price (the universal service obligation). Public utilities are often owned by the state, although this has become less common as a result of PRIVATISATION.

http://www.economist.com/research/Economics/

Love v Want

Recall a part of the Korean series which mentioning about Love v Want.

Do you know if your desire of a person is Love or Want?
Do you love him/her or do you just wanna owed him/her?

Love is about giving all you can for this person, trying to protect him/her from any harm, always thinking about his/her needs.

Want is, just thinking..I MUST HAVE HIM/HER, I don't care!!! Its about wanting to own that person, i.e. to say, its about what you want to gain from that person and not giving to that person.

So Love and Want is the total opposite.
Today someone told me he love me.
Its not the first time.
But in fact, he didn't realise that he doesn't love me. He just wants to own me.

So think twice when approaching someone who caught your eyes.
Is it Love or Want.
Love is self-sacrificing..like our Lord Jesus Christ.
Want is selfish.

So next time before you say "I LOVE U."
Think twice, do you mean "I Love U" or "I Want U"

My love so far is "I LOVE U."
Loving someone is the happiest thing, but also very exhausting..becuz its about giving your all to him, trying to protect him and foresee any problem which will araise, how to prevent those those problems so that he can have less burden. But of cuz, I will still leave the bigger task for him to handle becuz he is the MAN. hee..

Well..anyway, that's why..I have chosen to withdraw myself from this stage for the time being..esp not at my exam weeks (which is this entire week and next week)..

I really feel like hanging the DO NOT DISTURD sign up..
Hopefully that guy who claimed that he loves me, will stop DISTURD me during this period of time. I really need my time to Focus on my exam.

So if he really love me, he should be considerate and not bother me with this 'thing' at this point of time, esp when I already told him.

Kindly pray for me friends that I will pass all my subjects for this coming exam and score well..

Gambatte everyone!!!

Previous posts

I realised that there are some people who are still visiting my previous blog, so I left a note there for them to proceed here if they are interested to read my latest posting.

Similarly, if you have never been to my previous blog where my sketches of life begin, feel free to visit, http://angelsketchbook.blogspot.com/
But you will see a different me in the past.
What you see now in this blog is the new happy me who has moved on and enjoying the most of life right now..

Cheers:)

Have a wonderful weekend everyone!
Angel

The cat's fault!!!

I came back from my revision at McDonalds..
went into my room..and AHhhhhhhhhhhh......
WHO DID THIS???? SOMEONE MUST HAVE ENTERED MY ROOM WHEN I WAS OUT!!!
WHO????

Picking up the broken pieces of my elder brother's KENNY...
OH DEAR...it surely will not be broken if no one enters into my room...
Who? Who? Who?

My sister then owned up saying..."Its me! I enter into your room...
but NOT me..Someone else did it...Its my 'son' TIMMY!!!"
Timmy is my sister's cat..Ah..............

Tomorrow when elder brother comes home with our little princess I have to tell him..that his favour cat broken his KENNY..

:( "Its the cat's fault!"

"Happy Birthday Lutfi!!"

Was intending to write this yesterday but was too tired!!!

Yesterday was Lutfi, my buddy's birthday..
I told him, "let's take a break from revision, and go for a short and quick birthday celebration."
And he agreed.

Well, since it was his birthday, I let him chose where he wants to go, what he wants to eat. And so, we agreed to go to Vivo which is near his place for his birthday treat from me.

We ended up at Pacific cafe the place where Joyce introduce me before..And this time round, we managed to get the seat on the swing..hee..finally!!!

I ordered ice-cream, hot chocolate paradise for him as requested by this birthday boy. And I ordered chocolate cheese cake, Apple Crumble and coffee for myself..

Tho we agreed no studying yesterday..we can't help to talk about cases on Biz law and econs hee...

Well..its a nice short break from our study for a while..esp with nice scenary..this ease the tension that we have.

We were also thinking what to get for his gf for her birthday when she is back on her birthday to Singapore...At the end..no conclusion..hee..will leave it to him to surprise her lah..

So..that ends the Friday evening..as Lutfi went home to have his birthday 'celebration' with his family.

Conclusion: A short break at times of tension is good.... smile :O))

Today is Sat, just woke up from strange dream about 'Last Economic's revision Class'. Going for my facial treatment later and thereafter back to my revision probably somewhere nearby...

Haiz..that's how I am going to live my life for at least 3 years...
Already missing all those times with friends..and churchmates..and serving in church..
Just have to endure till this degree course is over..

As for now..I can't wait for exam to be over..hahaha..

Two Weeks of Hipcups

These two weeks I had lots of hipcups from others..
which create lots of tension for me at work..trying to solve their hipcups.

Don't be mistaken..those are neither hipcups created by my colleague or others..
Its just hipcups which is related to people around us which caused unnecessary tension to us.

Good thing is..everyone in our company is very understanding..and we help each other to solve the hipcups we face or give each other encouragements.
We are very positive company, which I really feel proud and blessed to be in it.
Thank you Lord!

A surprised call

Last nite about 11plus I received a surprised call from States.

I haven't been able to sleep for past few days..
feeling exhausted..
but after receiving this call from 'Teacher'- my church former preacher and my sunday school teacher in when I was 'young' hahaha..tho he is only ten years older than me..I slept really well last nite.

Not sure why..maybe its good to have such a surprise distance call from someone who I trusted and who trusted me very much..
Thanks Teacher for your call.

Its really nice to have such a long chat with you.
Wish everything is well for you!

Okie..if time and money permits, I will go for a holiday in Texas while you are still there..then you and your family must bring me around..okie..you promised..
hee...

Meanwhile...Cheer for my exam next week...

Okie got to get back to study!

Ciao :P

Exam Countdown...

As we started to count down to coming 2nd semester exam..the tension in the air gets stronger and stronger..

It seems like everyone is lifting their head as high as possible to breath thru this stressful period..

Each of us is like hamsters munching on our notes trying to store as much as possible..and 'vomit' out during our exams..
Tho it fills the stomach and the mouth but really exhausting when one has to munch non-stop.

I need more energy to stay awake and focuz munching...
which right now..this focuz period is very very short..even tho exam is exactly 2 weeks away...

Body seems to ache..lost of sleep..body needs the rest...cannot focuz anymore..but..the head just refuse to go to sleep...
I am feeling exhausted...
I started to take tonic..trying my best to stay in health.

Tried the Chicken essence chicken which Joyce's sister taught me over Facebook..
taste pretty good..but I guess cannot eat during the nite..
first felt very tired, went to bed..only to realise..I can't sleep the whole nite..hee..

Today..I felt bore with the usual food at the usual coffeeshop near my workplace..went to a coffee shop in the industrial park nearby...
Happy to discover this herbal soup stall..
I ordered this Ginseng Herbal chicken soup and rice..Mmm..


looks good right...ya..well...not bad I should say...tho cannot say fantastic..
Ginseng is good for giving energy and keeping one in good health and awake..

And thanks to Sandra..
before she left..she asked her sister in law and brother in law to pass me this Korean Ginseng Tea, Korean chocolate and nice Korean 'thingy'.
Thanks dear..



I love Korea..esp Korea Series..hee..Crazy about Korea happy ending series..to be exact...hee

Thanks for the Ginseng Tea..this comes in time...
Forgot how to say in Korean 'thank u' anyway..hee

Thanks Joyce too, she bought me Korean chopsticks and spoon and ginseng tea as well..the other time she went..

Hey..talking about it..can someone kindly get me Korean metal chopsticks sets and spoon...My family member seems to be very keen in using my one and only precious korean chopstick and spoon...esp my dad...use that to mix his coffee...my heart so pain..but cannot scold him :(

I know should have told you earlier Sandra..but you guys were rushing here and there..din want to trouble you back then..
Thanks alot for your gift..

Ganbatte..
Most importantly...I need your prayer that I will do well, pass all my subjects and do well for this semester okie...God pls help me..

Thanks for your prayer and thanks God for listening..hahaha :P

“加油吧，大家！！！”

Late Realisation

Have you missed the chance of being with that person or treasure that person when he/she is with you? People often seem to miss the fact that even love may lapse.
In my life, I find it ridiculous that guys whom I loved but did not treasured me while I was with them came back to me years back thinking they might get back what they missed in their past.
Many of a time, it take them years just to realise and treasure what they have missed in the past.

I believe you might share this same feeling/experience..
at times when you are with them, they did not treasure you..
Many times you feel like giving them a knock/hit on their head, hoping to wake them up from their sleep and make them realise just how much you love him.

But often, its only when your heart is dead and you decided to let go..this person suddenly appear in your life again..
thinking that you will love him/her like before..
not knowing..our love for him/her has lapse, due to many reasons, such as disappointment, hurts, anger, new love and fear.

Its unlike that story of the prodigal son who after he squander all his money, went back to his dad and ask for forgiveness and his dad embrace him to welcome him back and even throw a celebration for his return.
This Father is just like our Father In Heaven, God. As God is Love.
God's love is unconditional. But human love, many times are with condition.

When I love someone or something, I will put in all my heart to make sure I do my best to make it work.
Similarly, if after all these effort, it doesn't work out the way I wanted..
I will be too exhausted to try anymore.
So, which is to say..esp in relationship...
No 2nd chance. The heart has been hurt too badly and already dead.

That is to say, in most case, I will not give 2nd chance once you have decided to let me go.

'Human love lapse'- I am exhausted..
I only want to focuz on my work and study right now..
Esp now..my exam is most imp.
Relationship is not in my mind at least for this 3 years of study..
unless this person can helps me in my study or work..hee..
very practical right?

:)