ECON 2000 Chapter : Econ Chapter 4
Document Summary
The market mechanism would hopefully lead us a certain point representing the optimal mix of output on a chart. This is when we get the wrong answer to the what question some form of nonmarket force to get the right answers. Source of market failure: public good, externalities, market power, inequity: public goods, private goods- a good or service whose consumption by one person excludes consumption by others. Only you get to eat it: public good- a good or service whose consumption by one person does not exclude consumption by others. A free rider is a person who reaps direct benefits from someone else"s purchase of a public good: underproduction of public good. If public goods were marketed like private goods, everyone would wait for someone else to pay. The end result might be a total lack of public services. The market tends to under produce public goods and over produce private goods.
