The main types of market failures are: Externalities as Manifestations of a Market Fiasco

The concept of market failures

Market failure, or as it is also called "market fiasco", is a situation in which the market is unable to coordinate the processes of economic choice in such a way as to ensure effective use. The moment when the market is unable to ensure the efficient use of resources and the production of the required amount of goods, then they speak of market failures. The situation when the market mechanism does not lead to the optimal distribution of society's resources is called market failure or fiasco.

There are usually four types of inefficient situations that indicate "failures" of the market:

1. Monopoly;

2. Imperfect information;

3. External effects;

4. Public goods.

In all these cases, the state comes to the rescue. It tries to solve these problems by implementing antimonopoly policy, social insurance, limiting the production of goods, stimulating the production and consumption of economic goods. These areas of state activity constitute, as it were, the lower limit of state intervention in the market economy. However, in the modern world, the economic functions of the state are much broader. Among them: infrastructure development, education financing, unemployment benefits, different kinds pensions and benefits for low-income members of society and more. Only a small number of these services have the properties of public goods. Most of them are not consumed collectively, but individually. Usually the state pursues an anti-inflationary and antimonopoly policy, seeks to reduce unemployment. In recent decades, it has become more and more active in regulating structural changes, stimulating scientific and technological progress, and striving to maintain high rates of development of the national economy. If we add to this regional and foreign economic regulation. All this is reflected in Figure 3.

Figure 3. Market failures

Types of market fiasco

There is a list of the most typical market failures. The first ones are usually called violations of the conditions of perfect competition, expressed in the restriction of access to natural resources. These can be artificial (quotas, licenses, direct prohibitions) or natural barriers. In the latter case, the emergence of natural monopolies is possible. A natural monopoly is a market situation in which the minimum average production cost is achieved when there is only one firm producing a given product or service. Occurs where there are no real alternatives, there are no close substitutes, the product produced is to some extent unique, in addition, an increase in the number of firms in this industry causes an increase in average costs. Examples of natural monopolies are oil companies, electric power companies, railways, telephone companies, space and military industries. Another failure of the market is its inability to provide access to complete and perfect information about goods, sellers, communication conditions for all market participants. There may be situations when the seller knows that his goods are heterogeneous, that the qualities of individual units of the goods may differ significantly, and the buyer does not have a clear idea about this. In such cases, one speaks of information asymmetry. The information asymmetry graph is shown in Figure 4.

Figure 4. Information asymmetry

Comment to Figure 4: Figure 4 shows the change in sales of land plots due to information asymmetry: a decrease in sales of higher quality land plots and an increase in sales of lower quality land plots. Dk, Sk - demand and supply for more quality land plots, Dn, Sn - demand and supply for less quality land plots. Qrev. conv - the volume of purchases of land plots of better and lower quality, made in the land market in the absence of information asymmetry, Qas. k - the volume of purchases of better land plots under the influence of information asymmetry, Qas. n - the volume of purchases of less quality land plots under the influence of information asymmetry. If the asymmetry of information does not allow buyers to identify land by quality, their expectations are due to the fact that among the land plots on the market some are of better quality, and some are of less quality, then the demand curve will move to the position Dasim, between the demand curves for better and less quality land. There will be no shift in direct supply, as the sellers are well aware of the quality of the land they are selling. As a result, there is a shift in the volume of purchases towards a lower quality good.

Another condition that can reduce the effectiveness of the market mechanism is the immobilization of resources. Many reasons today stand in the way of a Russian worker who wishes to change jobs in one city, and even more such reasons will arise if he decides to move to another city. This is the absence of many social guarantees, differences in living standards in different regions, the uncertainty of the legal status of a citizen, and so on. As a result, monopolies are formed in the labor markets, the efficiency of production decreases, and the gap in the level of incomes of various segments of the population widens. In other cases, the assets of enterprises are immobilized when the funds invested in fixed assets cannot be quickly released and put back into circulation.

There are also so-called external effects, they can be both positive and negative from economic activity. Externalities are costs to individuals or society that are not reflected in prices (negative externalities) or benefits that are enjoyed by individuals not participating in the transaction (positive externalities). When an expedition accidentally finds an ancient city, it can be considered a positive externality. Unfortunately, economic activity in the modern economy has many more examples of negative externalities. One of the clearest and most typical examples of negative externalities is pollution. environment. For example, a chemical plant produces fertilizers. Its owner receives income, the buyer receives utility, that is, mineral fertilizers, and local residents receive environmental pollution, a decrease in the number of birds and insects, diseases, and a reduction in life expectancy. Negative externalities are losses, costs of third parties not participating in the market transaction. These external costs are not reflected in the individual production costs of firms, since the latter do not include the cost of reducing emissions. harmful substances into the atmosphere or processing Wastewater. The presence of negative externalities means that the price does not fully reflect the social costs of production, which are actually higher than the individual ones. To mitigate this market deficiency, the state implements various corrective measures designed to reflect social costs or public utility in the market price. Graphs of external effects are shown in Figures 5 and 6.

Market failures include externalities. At the same time, the market is not able to adequately transmit information about the price. Pricing policy must reflect the objective cost of production of goods and services. The manufacturer and the customer are involved in the process of buying and selling. If their actions begin to influence third parties who are not involved in the trading process, then we are talking about such types of market failure as externalities. For example, environmental pollution.

4. Public goods as a manifestation of market failures. properties of a pure public good. "Quasi-public" goods and their types.

1. Public goods - goods that have the following features:

A sign of non-exclusion - it is almost impossible to exclude a person from the circle of consumers of this good

A sign of non-rivalry in consumption - the consumption of a good by one person does not reduce the possibility of consuming it by another

A sign of indivisibility - the good cannot be decomposed into separate units

This definition is well illustrated by the following examples:

The lighthouse that guides sailors at night shines on all who reach its light.

The ensured internal and external security of the state is available to everyone who is on its territory.

Public goods are not at all like private goods, it is almost impossible to organize their sale: individuals enjoy the effects of public goods, but avoid paying for them (free rider effect).

There are not so many pure public goods; mixed goods are more common, including properties from both private and public goods. These are club, transshipment goods and common resources, such as clean water and fish in the sea.

Market failure is the inability of the market to allocate scarce resources efficiently.

Out of many possible causes market failure three deserve special attention: externalities, public goods and lack of competition.

Why is the state engaged in the production of so many goods, the supply of which would be more efficiently organized by private firms? Some answers, mostly related to political imperialism and the dysfunctional nature of politics, were offered in Chapter 9. But there are less solid reasons, such as the belief that the state should provide public goods. IN Lately economists have subjected this argument to scathing criticism. However, entrepreneurs don't wait for scientists to show them the way; while scientists debated whether markets could work, markets produced what consumers needed, from lighthouses and schools to postal services and flood insurance. The “market failure” claim is perhaps the most important intellectual argument for state intervention in the market system. Some economists argue that, under certain circumstances, markets are unable to provide what we want and what we would be willing to pay for. However, if a person does not declare a market failure in the pages of a scientific economic journal, he usually means that the market could not provide something he needed. Economists argue that people will "freebie" when providing non-exclusive goods; that is, some shipowners will not make contributions to the maintenance of the lighthouse, since they can use its services while others make contributions. Of course, if a lot of people are trying to "ride without a ticket", it is possible that this service will not be provided at all. Therefore, some economists believe that the state, in order to correct market failures, must levy taxes and provide such services itself.

Quasi-public goods are useful goods, the consumption of which forms a healthy lifestyle and socially favorable habits. Their consumption is considered desirable. Health care, free secondary education, free vaccinations for animals, national defense, etc. can be considered as such benefits.

Quasi-public goods are easily amenable to market pricing (cost + profit = PRICE), but because of their positive effect on the population, the state deliberately assumes the cost of their production. In essence, the state endows private goods with the properties of public goods.

5. Demand for pure public goods and its features. Free rider problem

A pure public good is a good that is consumed collectively by all people, whether they pay for it or not. It is impossible to derive utility from the provision of a pure public good by a single consumer.

The demand curve for a pure public good is obtained by adding its individual marginal utilities to all consumers at each possible price, which implies vertical summation of the individual demand curves.

The free rider effect is an economic phenomenon in which the consumer of a public good tries to avoid paying for it.

The free rider problem arises when an individual is consciously unwilling to pay for a public good, expecting to receive a benefit without any payment. One of the clearest examples of the manifestation of the free rider problem is the phenomenon of citizens evading taxes that go (among other things) to provide public goods.

The problem with the free rider is that free riders underestimate the value of a purely public good, resulting in a lower output of the public good than its effective output. Thus, the possibility of free consumption of purely public goods causes the inefficiency of their production.

Ultimately, there may be a situation where no one will pay and the provision of a purely public good will be impossible. In other words, everyone is interested in consuming a purely public good, but no one wants to pay. In this regard, the task of producing purely public goods is reduced to solving the question of how to ensure their production in the presence of free riders.

The solution of the free rider problem by the method of elimination is either associated with significant costs or leads to underproduction of a purely public good, and, consequently, to a decrease in total utility. In this case, the provision of purely public goods becomes possible only with the participation of the state.

The forms of state participation in the provision of purely public goods are different: from the direct production of goods (national defense, fire protection) to the financing of public goods produced by the private sector (cleaning and garbage disposal, some types of medical care). However, their essence is the same: the production of public goods, provided through the state, is financed by taxes levied on all citizens, as a method of solving the free rider problem.

The provision of public goods with the participation of the state does not automatically mean the achievement of an effective volume of their production. The propensity of low-income individuals to limit the financing of the production of public goods through tax cuts reduces the supply of public goods to below efficient levels. The use of a differentiated tax rate helps to reduce efficiency losses in the production of public goods, but runs into the problem of determining consumer preferences, without which it is impossible to reasonably differentiate the tax.

Plan.

Failures (fiasco) of the market.

Lecture summary.

Thus ,

The market develops, becomes more complex, there are different approaches to its understanding. They are widely represented in the economic literature. Let's choose the following definition of the market:

The market is a system of economic relations between sellers and buyers, based on the purchase and sale of goods, services and money.

The essence of the market is most fully revealed through its functions:

Informational.
Regulatory.
Stimulating.
Controlling.
Pricing
Differentiating.

The market is a great achievement of human civilization, but at the same time it has its drawbacks.

Positive features market:

Flexibility and high adaptability to changing conditions.
Rapid use of new technologies to reduce costs.
Independence of producers and consumers in decision making.
The ability to meet the needs required quantity and high quality.

Approaches to the classification of market types. market infrastructure.

The market has a certain structure - the internal structure of the individual elements of the market. The market structure is classified according to different criteria, the most important of which are the following:

For economic purpose distinguish the market for goods and services, the market for means of production, the labor market, the securities market, the money market, etc.
By geographic location distinguish between local, regional, national and world markets.
Degree of restriction of competition: market of free competition, market of pure monopoly, market of oligopoly, market of monopolistic competition.
By industry: automotive, grain, etc.
By nature of sales: wholesale, retail.
From point of view compliance with the law: legal market (corresponding to the law) and shadow market (not complying).
It also separates the sellers' market and the buyers' market.

market infrastructure.

Market infrastructure is a set of institutions that ensure the successful functioning of the market. The infrastructure performs very important functions: it facilitates the meeting of sellers and buyers, facilitates transactions, allows the state and society to control the market.

It is necessary to distinguish between the infrastructure of the commodity, financial markets, labor market.

Market infrastructure elements: commodity exchange, stock exchange, labor exchange, banks, tax services, etc.

Exchange- the wholesale market for standard goods or the market for transactions for the purchase and sale of currency, securities and labor, where prices are set publicly (quoted). This definition does not apply to the labor exchange.

In the practice of commodity exchanges there are several types of transactions: forward, futures, option. Exchange practice is associated with the concept of "hedging" (fencing, insurance). This is a process that aims to provide insurance against possible losses due to sharp price fluctuations.

The main actors on the exchange are: broker, broker, dealer, bull, bear.

Failures (fiasco) of the market.

Failures are cases when market self-regulation does not solve the economic and social problems of the market and government intervention is required to solve them. There are many forms of market failures:

Occurrence of external effects.
The market does not produce public goods.
information asymmetry.
The market is associated with risk and uncertainty.

What's happened externalities? Is it the cost or benefit of side effects external effects in the process of market transactions, which are not reflected, however, in the market prices of goods and services. External effects primarily affect third parties (people who are not directly involved in the material and monetary costs of producing these services and goods. External effects can be negative and positive.

The consequences of the existence of externalities are that resources are allocated inefficiently and social utility is lost. An example of negative externalities can be such phenomena as environmental pollution by firms (harmful emissions) or the effect of "passive smoking".

Today, the consequences of environmental pollution have taken on an international character (the global "greenhouse effect").

The issue of regulating external effects in the XX-XXI centuries is very acute. Negative externalities are regulated through standards and regulations, taxes, "charges for emissions", etc.

Positive externalities - for example, facilitating the opportunity to receive additional education- scientists, for example, A. Pigou, propose to regulate through subsidies and grants.

public good are goods and services that everyone needs, regardless of the price paid for them. A purely public good is a good that cannot be given to one person without being given to everyone else. Usually these goods are consumed together. Public goods have features of non-excludability and shared consumption; the emergence of new consumers usually does not reduce the benefit of consumption for others, and so on.

These benefits are usually associated with the free rider effect, in which people are tempted not to pay for their production. The difficulty of obtaining payment for them leads to the unprofitability of their production, so that the state is forced to take it upon itself. An example of purely public goods: national defense, road network, fire service, etc. In fact, these goods are paid for by all taxpayers. There are other types of public goods that people can receive both free of charge and for a fee.

Another type of market failure is information asymmetry. This is a situation where part of the market participants in the course of a transaction possess important information that other participants in the transaction do not possess. This phenomenon is relevant to many markets: the labor market, the market for complex goods and services, securities, and so on.

Control questions for self-test.

Name the functions of the market. Which of these functions, in your opinion, do not work in the economy modern Russia?
What functions does the market infrastructure perform? What elements of financial market infrastructure do you know?
Name the manifestations of market failures.
Name the main agents of the market.

Issues for discussion.

Explain how the market serves as a medium for the exchange of information about the decisions of households and firms.
Are market failures related to ethical issues? Or is it just economics?

Main literature.

1. Pyastolov S.M. Economics.ch.6

2. Economic theory (political economy). / Ed. Vidyapina V.I. And Zhuravleva G.P. - Ch.10,11.

Questions for reflection.

Give an economic explanation for the graphical depiction of fixed, variable, total, average, and marginal costs.
In the long run, in contrast to the short run, firms can make all the desired changes in the structure of the resources used. What then determines the minimum effective size of firms?

Main literature.

1. Pyastolov. S. M. Economics., Ch. 3

2. Economic theory (political economy). / Ed. Vidyapina V.I. And Zhuravleva G.P. - Ch.3-7,11.

Additional literature.

Economic theory. Microeconomics - 1.2./Ed. Zhuravleva G.P. - Ch.5,6.
Economy. / Ed. Bulatova A.S. - Ch.5.
Microeconomics. Theory and Russian practice. /Under. Ed. Gryaznova A.G., Yudanova V.P. T.2
Nureev R.M. Microeconomics course. Ch.3-13.
McConnell K., Brew S. Economics. Chapter 4.30.

Questions for reflection.

How do you understand the expression of F. Hayek: “Competition is a discovery procedure…”?
What determines whether the industry will be competitive, that is, consisting of a large number of small firms, or will it be dominated by a few large firms?
What are the similarities and differences between monopolistic competition and perfect competition?
What are the strengths and weaknesses of antitrust regulation in Russia?
Few oligopolistic competitors means total interconnectedness. Other things being equal, will this interdependence change in direct or inverse proportion to product differentiation in the number of firms?

Lecture 5

Plan

The essence of inflation as a socio-economic process.
Conditions and causes of inflation, factors of inflation.
Basic principles of inflation classification.
Measurement of inflation: indicators and main problems.
Socio-economic consequences of inflation.
anti-inflation policy.

Lecture summary

The essence of inflation as a socio-economic process.

The term "inflation" (from the Latin Inflatio - "swelling") was first introduced into circulation during civil war in the USA in 1861-1865. XIX century to refer to the situation of money losing its purchasing power. In the scientific literature, this concept appeared in the twentieth century.

However, in itself, this phenomenon has been known to mankind since the advent of money circulation. And in the 20th century, inflation became chronic, almost inevitable, since there were much more factors provoking it than restraining it.

In economic theory, approaches to understanding the role and consequences of inflation have been different. Representatives of classical bourgeois political economy studied inflation as part of the theory of money. Even J. M. Keynes first analyzed inflation as an element of macroeconomic theory, and later monetary theory already included inflation problems in macroeconomic theory as an important component of it. All this suggests that inflation is an ambiguous phenomenon.

In Russian economic literature, inflation has been interpreted in different ways. In the 1930s - as an excessive issue of banknotes; in the 1960s-1970s - as a multifactorial phenomenon that does not have an unambiguous interpretation.

Thus, inflation is a multifaceted phenomenon that includes production, monetary and reproductive aspects. Inflation can be defined as follows: inflation is a decrease in the purchasing power of a nominal monetary unit under the influence of a number of factors, which is expressed, first of all, in the appearance of a steady upward trend in the general level of prices in the markets for goods and paid services.

The key points in this definition are:

"a number of factors"
"steady trend"
"general price level"
"in the commodity markets"

Conditions and causes of inflation, factors of inflation.

The condition for the emergence of inflation is the discrepancy between the nominal money supply, on the one hand, and commodity mass, on the other. The situation is derived from the equation of money exchange (I. Fisher model) of the quantitative theory of money: M × V = P × Y,

where M is the amount of money in circulation;

V is the velocity of money circulation;

Y- real income;

P is the price index.

But this condition alone does not explain the causes of inflation. Inflation can be accompanied by both growth and decline in production.

The most important causes can be grouped in different ways, for example, divided into internal and external.

Lecture 6

Plan:

Labor market (labor force). Employment rates and unemployment.
Historical approach to the analysis of the causes of unemployment and the classification of its types.
Monetarist approach to the analysis of unemployment. Modern classification unemployment.
Consequences of unemployment: non-economic and economic. Okun's law.
Public policy fight against unemployment.
Relationship between inflation and unemployment.

Lecture summary.

Labor market (labor force). Employment rates and unemployment.

Labor market- the sphere of sustainable exchange between sellers of labor services and buyers of these services.

This market, unlike others, is subject not only to the laws of economics, but also to socio-psychological laws. The economic function of the labor market is to ensure the optimal reproduction of the labor force, and the social function is to ensure the quality of life of the employee and his family.

The labor market mechanism at the macro level is a combination of the aggregate market demand (AD) for labor services and the market supply (AS) for labor services.

The object and subject of the labor market is the population, and the initial indicator of the labor market is the employment of the population.

Population (POP) from a macroeconomic point of view is divided into two groups:

Included in the labor force (according to the IOT classification - "economically active population" (L).
Not included in the labor force (NL).

POP=L+NL

People not included in the NL workforce are sometimes referred to as the institutional population. This group includes two large subgroups:

Children under 16 years old.
People serving time in prisons.
People in psychiatric hospitals.
Disabled people.

Day students.
Retired.
Housewives.
Tramps (homeless people).
People who were looking for a job, but stopped looking for it.

Thus, the labor force includes two groups of the population: employed and unemployed.

Employed (E)– people who have a job, it doesn’t matter if a person is employed full-time or part-time

Unemployed (U)- people who do not have a job, but are actively looking for it, or waiting to start working. Job search is the main criterion for the unemployed.

Unemployment figures:

The main indicator is the unemployment rate. The unemployment rate is the ratio of the number of unemployed to the total labor force.

U= U x 100%

The indicator of the average duration of unemployment per one unemployed person.
Share of working time lost due to unemployment.

Market: essence, functions. Market failures.

Plan.

Market: essence, functions, structure.
Approaches to the classification of market types. market infrastructure.
Failures (fiasco) of the market.

Lecture summary.

Market: essence, functions, structure.

In the history of the development of a market economy, a number of stages can be distinguished: exchange, commodity circulation, market.

The main condition for the emergence of exchange, and then the market, is the social division of labor. Exchange exists in all historical epochs (maybe also the exchange of products of labor - barter), while commodity circulation appeared later. It is a commodity exchange mediated by money (C - D - C), therefore it is associated with money circulation. Approximately 6-7 thousand years ago, commodity circulation began to be universal and established itself as a market system.

Thus , the market is the result of the natural-historical process of the development of a commodity economy, due to the division of labor and the isolation of business entities. At the same time, the market is not only a historical phenomenon, but also a cultural, philosophical and, of course, economic one.

The market develops, becomes more complex, there are different approaches to its understanding. They are widely represented in the economic literature. Let's choose this definition of the market.

The market is the main mechanism for the distribution of limited resources.

Pareto-optimal resource allocation conditions in a market economy:

The prices of consumer goods correspond to their marginal utility;

Resource prices reflect their relative scarcity. In other words, the marginal "private" costs of production accounted for by firms are identical to the "public" opportunity marginal costs;

· the market rate of interest on capital (the "private discount rate") is the same as the public discount rate;

· the state of underemployment at a certain ratio of prices for resources sets in motion the processes of substitution, which bring the economic system closer to the state of full employment.

Alas, there are situations in which, due to certain circumstances - the peculiarity of the production technology used, the small market capacity, the specifics of consumption, the quality characteristics of the goods (services) produced, or for some other reason - the above rule of competitive efficiency is not observed. And then the competitive market (in the narrow sense - "price") mechanism gives a "failure", i.e. allocates resources inefficiently or does not occur at all. As a result, profitability is not identical economic efficiency, profit maximization does not mean social welfare maximization, i.e. achieving Pareto efficiency in production and distribution.

Such cases are referred to by such a rather conditional and not entirely successful term as market failures/fiascos (market failures

Market failures/fiascos are cases where the market perfect competition does not provide Pareto efficiency, the price system is not able to "alone" efficiently allocate limited resources. Accordingly, it must be "supplemented" or replaced with another mechanism.

Modern economic theory has about eight types of inefficient situations that indicate market failures:

· existence external/side effects;

· underproduction(or the complete absence of markets) public (non-excludable) goods. Strictly speaking, this is a special case of externalities/side effects;

· the absence of markets for some private goods, in particular for many forms of risk and for most future transactions. This market failure is commonly referred to as incomplete markets for private goods.

· underproduction some private goods due to the indivisibility of large production capacities and, as a result, the discreteness of the market supply function.

· competition inefficiency, i.e. its impossibility or inexpediency in conditions of increasing returns to scale, leading to the emergence natural monopolies.

· information asymmetry between sellers and buyers, generating uncertainty and leading to transaction costs (discussed in detail in topic 10);

· underemployment of resources(in particular, labor);

Excessive (from the point of view of dominant social ideas, society's culture, value system) income inequality.

This list of market failures is not (as will become clear below) their strict classification, but is convenient for further analysis.

Of course, the normal functioning of the market mechanism presupposes the adherence of sellers and buyers to certain legal norms and moral traditions. Formal rules and informal norms are an integral part of the market mechanism, because In any sense, the market is an institution. Violation of rules and norms leads to deformations of the market mechanism and (as a result) to inefficient allocation of resources, but they are not considered "market failures" due to their other - "external" - nature. Here, an analogy with physical and chemical processes would be appropriate: violation of the rules for the operation of any mechanism, leading to its failure, cannot be considered a disadvantage of this mechanism.

In addition, there are important social problems for which the market is not designed in principle. In particular, the market is "neutral" in relation to the problem of "social justice". Therefore, it seems incorrect to criticize the market mechanism in terms of goals for which it is not intended (as, for example, one cannot criticize a car for not flying).

External / side effects

The main reason why a competitive market system sometimes does not provide Pareto-optimal allocation of resources is considered to be the so-called. "external/side effects".

External / side effects or "externalities" (externalities)- benefits or undesirable phenomena accompanying market transactions for which a market cannot be created. In a somewhat narrower and more precise sense, these are the costs or benefits of market transactions that are not reflected in prices and / or in the terms of contracts (if non-price components of contracts are taken into account). In the language of the new institutional economics - "unspecified" in the terms of contracts. Externalities arise from both the production and consumption of goods and services. A prime example of a good with a positive externality is education; classic examples of negative externalities are industrial pollution and the "tragedy of the commons".

Pure public goods (pure public goods)- indivisible goods and (most often) services that are consumed collectively by all people, regardless of whether they pay for them or not.

A pure public good is characterized by two properties: non-selectivity and non-excludability in consumption. The first property characterizes the consumer characteristics of pure public goods, the second characterizes the characteristics of the relationship of consumers with the "suppliers" of public goods.

Property non-selectivity (non-competitiveness) in consumption means that the consumption of a pure public good by one person does not reduce its availability to others. Such benefits are not competitive for consumers, because the marginal cost of providing them to an additional consumer is zero.

Property non-excludability from consumption (main property) means that no person can be prevented from consuming the good, even if he refuses to pay for it. Otherwise, it is called the regime of free access to the good. For pure public goods, it is technically impossible to limit the number of users (consumers); they are indivisible and not excluded from consumption by third parties. Therefore they are often called non-excludable benefits.

pure private good (pure private good)- a good, each unit of which can be sold for a fee. In other words, it is a good that has the properties of competitiveness in consumption and exclusivity of access. Most of these benefits. Almost all material objects consumption (food, clothing, housing, vehicles, etc.) are private goods.

Unlike a purely private good, a purely public good cannot be divided into units of consumption (it cannot be produced in "small" batches) and sold in parts.

Some benefits can be categorized mixed (mixed goods) They are partly subdivided.

For them, exclusion from use is “technically” possible, but involves significant costs. In some cases, it is too expensive or otherwise undesirable. An example of mixed goods are some highways, as well as technical inventions.

“Because consumers benefit from a pure public good whether they pay for it or not, many of them (due to economic opportunism) have a desire to avoid unnecessary costs, to receive this is a good for nothing. In the case of a "regular" - private - good, the consumer refuses to buy in two cases: if the goods are not really needed or if the price is too high. In the case of a purely public good, the consumer has a third reason not to pay - the opportunity to get it the benefit is free, “ride a hare.” This situation is called in economic theory free rider problem (free rider problem).

Due to the large number of “free riders”, a private firm will not even be able to cover the costs. As a result of private production, purely public goods most often do not arise, the price system does not create incentives for their production. A striking example of the inability of the "market" (more precisely, commercial enterprises) to create public goods is the lack of commercial funding for basic scientific research and the underfunding of promising innovative developments - a kind of "myopia" in relation to long-term innovative investments.

Market failures: in the case of market power in the presence of externalities in the production of public goods in the case of asymmetric information. Ways to solve problems of externalities: Internalization of externalities. a For example, if, to eliminate negative externalities, the state introduces a tax withholding in the amount of marginal external costs, then the domestic costs of the producer will increase and bring the volume of output in line with the socially optimal one.

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Ticket 19, 27

Failures, or fiasco of the market. Externalities and the market.

Failures, or fiasco, of the marketcall such cases when there is an inefficient allocation (or allocation) of resources. The market fails = the price does not reflect all costs, or the market cannot produce any goods.

Market failures (fiasco):

in case of market power
with external effects
in the production of public goods
in case of asymmetric information.

External effects (externalities)these are costs or benefits from the production or consumption of any goods for third parties not participating in the transaction.

Externalities disrupt the market mechanism.

Conditions for Achieving a Socially Efficient Output:

MSU=MSC,

where MSU marginal social utility,

and MSC Marginal social costs.

Negative externalities give rise to overproduction in a competitive market, while positive externalities give rise to underproduction.

Ways to solve problems of externalities:

Internalization of external effects. At and-and external the effects become internal.

a) For example, ifto eliminate negativeexternal effects, the state will introduce a restraining tax in the amount of marginal external costs, then the internal costs of the producer will increase and bring the volume of output in line with the socially optimal.

b) To internalize positiveexternalities, the state uses incentive subsidies.

Coase theorem

If property rights to resources are clearly defined and respected, including the possibility of free exchange of these rights, then the market will be able to resolve the problem of externalities on its own, without the participation of the state, by buying and selling these rights.

public goodsThese are indivisible benefits of collective use.

Properties of public goods:

non-excludability from consumption (the very nature of a pure public good is such that it is impossible to separate payers from non-payers);
non-rivalry in consumption (an increase in the number of consumers does not reduce the utility of this good for others, therefore, the marginal cost of providing = 0).

Those public goods and services that fully meet these properties are calledpure public goods.

The free rider problem- free use of a good for which one should pay. The market is not designed to solve the problem of bezb-a, tk. does not have such mechanisms that are able to separate the payer from the non-payer.

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