Economics 2159A/B Lecture Notes - Lecture 9: Marginal Cost, Market Failure

• School: Western University
• Department: Economics
• Course: Economics 2159A/B
• Professor: Irene Trela

Document Summary

Since no one can be prevented from using a public good, no one has any incentive to pay for it. Selfishly, it makes sense for me to wait for someone else to conduct research because whether i contribute or not will have a negligible impact on it"s availability if others contribute. It can thus be argued that research will be underfunded and therefore underproduced in private markets and that government intervention is needed to increase its availability. Governments can intervene by subsidizing medical research activities. Medical research receives millions of dollars in public funding annually. Academicians conduct much of our medical research, working within the university and medical school setting. By subsidizing medical research, government can move the allocation of resources towards a more efficient outcome. The mechanism that the government uses for this purpose is research grants, funded by taxation revenues. Let"s see how this intervention can reduce market failure