Chapter 5: Market Failure by Akif https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu en-us 2023-06-02 23:30:43 UTC 2024-09-29 22:47:43 UTC hello@padlet.com Signalling Function - What to produce mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613304220 2023-06-02 23:50:00 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613304220 Signalling function - How much to produce? mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613309505 2023-06-03 00:10:45 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613309505 Incentive function - How to produce? mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613309868 2023-06-03 00:11:52 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613309868 Rationing function - For whom to produce? mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613311657 2023-06-03 00:17:56 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613311657 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613315571 Consumers - Net private benefit maximised when MPB = MPC at Qp
Producers - Net private benefit maximised when MC = MR at Qp]]> 2023-06-03 00:30:24 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613315571 Characteristics of Public Goods mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613319769 a) Non-rivalry in consumption - Consumption of the good does not reduce the total supply available to others
b) Non-excludability in consumption - Once the good is made available, it is difficult/costly to exclude anyone from consuming it
c) Non-rejectability in consumption - Inability of consumers to reject the consumption of a good]]> 2023-06-03 00:44:15 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613319769 Public Goods leading to Market Failure mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613322814 Non-rivalry
- Marginal cost of serving another consumer is zero
- No effective supply

Non-excludability
- "free rider problem"
- No incentive for people to pay
- No effective demand]]> 2023-06-03 00:52:49 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613322814 Government Intervention to correct Market Failure mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613325073 Command and control policies
a) Government supplies the good to public for free, but collects tax revenue to meet production costs
b) Goods are demanded by the government on behalf of general public, financed by the government's budget paid to private enterprises

Advantages
- Net social benefit is maximised as government is producing or paying firms to produce the public good

Disadvantages
- Govt must already have funds or else opportunity cost may be incurred]]> 2023-06-03 01:00:58 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613325073 Government Intervention (Producers) mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613347955 Market-Based Policies
- Taxation
- Incentivising the use of environmentally friendly methods of production

Command and Control Policies
- Imposition of a Quota on Goods being Produced
- Banning the Production of goods
- Tradeable Pollution Permits
- Nationalisation

Moral Suasion
- Educating producers]]> 2023-06-03 02:15:14 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613347955 Government Intervention (Consumers) mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613357512 Market-Based Policies
- Taxation or Charges
- Incentivising the consumption of a substitute good

Command and Control Policies
- Quota
- Banning the consumption of a good

Moral Suasion
- Educating consumers
- Changing consumer preferences]]> 2023-06-03 02:46:21 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613357512 Government Intervention (Producers) mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613840226 Market-Based Policies
- Subsidies

Moral Suasion
- Providing positive publicity

Other Policies
- Supplementing the production of a good]]> 2023-06-04 09:29:19 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613840226 Government Intervention (Consumers) mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613852357 Market-Based Policies
- Subsidies
(if govt subsidize producer, and subsidy is passed on to consumer, draw DD/SS and Cost/Benefit diagrams)
(if govt subsidize consumer directly, draw Cost/Benefit diagram only)
- Free provision
-Supplementing Under-Consumed Goods

Command and Control Policies
- Compulsory consumption

Moral Suasion
- Educating Consumers]]> 2023-06-04 10:10:45 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613852357 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613855567 Consumers want to maximise actual benefit and want to consume at Qactual ]]> 2023-06-04 10:20:29 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613855567 Government Intervention mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613858874 Command and Control Policies
- Legislation on the Provision of Information: Introduce Specific Product Standards

Moral Suasion
- Educating Consumers]]> 2023-06-04 10:29:51 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613858874 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613863687 Sellers has more information than buyers (Used car market)
- Sellers have more info regarding condition of used cars than buyers
- Sellers are likely to withhold this information
- Consumers anticipate that sellers will sell them low quality used cars (lemons)
- Consumers lower the price they are willing to offer
- Sellers selling good quality used cars (peaches) will not be willing to sell at this lower price
- Only lower quality used cars will be sold in the market
- Missing market for good quality used cards
- Used car market adversely selects against higher quality used cards in favour of lower quality used cars
- Under consumption of good quality used cars, leading to 
failure to achieve allocative efficiency, leading to market failure


Government Intervention
- Legislation on Provision of Information
- Legislation to protect consumers (Lemon Law)
]]> 2023-06-04 10:43:46 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613863687 Adverse Selection mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613864774 2023-06-04 10:47:09 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613864774 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613868967 Buyer has more information than sellers (Insurance market)
- Consumers know more about their own health than insurer
- Consumers are likely to withhold this information
- Insurance company will end up paying more in insurance claims to those with higher health risk
- Sellers anticipating high health risk consumers will raise insurance premium
- At higher price, high health risk consumers remain but low health risk buyers may not choose to buy
- Insurance market only attracts high health risk consumers
- Low health risk consumers naturally select themselves out of the market
- Insurance market adversely selects against low-health risk consumers in favour of high-health risk consumers
- Under provision of insurance to low health risk consumers leading to failure to achieve allocative efficiency, leading to market failure




Government Intervention
- Provision of Insurance
]]> 2023-06-04 10:59:04 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613868967 Example: Health Insurance mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613871688 - If individual is not insured, he/she will take care of his/her own health
- With insurance, individual would be fully covered in event of hospitalization
- Individual will have less incentive to take care of his/her health since medical cost is covered
- Under consumption of healthy foods e.g. vegetables
- Over consumption of unhealthy snacks e.g. potato chips
- Insurance market might not have agreed to transaction if they had known about the change in behaviour in advance
- Could lead to a missing market since insurance companies don't want to provide insurance because people change their behaviour
-Leads consumers to overconsume goods that may have some risk of harm or underconsume goods that can minimise potential losses, thus leading to allocative inefficiency]]> 2023-06-04 11:07:18 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613871688 Government Intervention mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613872126 - Market-Based Policies (E.g. Taxation)
- Co-payment of insurance

]]> 2023-06-04 11:08:40 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2613872126 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616375985 - Public Goods
- Externalities (Positive and Negative)
- Information failure (Asymmetric (Adverse selection and Moral hazard) and Imperfect)
- Factor immobility (Occupational and Geographical)

]]> 2023-06-07 00:02:24 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616375985 Occupational Immobility mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616379585 - Occurs when there are barriers to the mobility of workers between different industries
- Caused by mismatch between skills possessed by labour and those required by producers
- May be due to lack of qualification, relevant education and training
- Worsened by raised unemployment benefits]]> 2023-06-07 00:07:15 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616379585 Geographical Immobility mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616388285 - Exists when there are barriers to people moving from one geographical locality to another to find work
- Due to inability or lack of willingness of labour to move (due to high cost of relocation, availability of poor housing/other facilities in new area or ignorance of availability of jobs elsewhere in the country)
- Worsened by persistent lack of investment in public transport infrastructure]]> 2023-06-07 00:17:52 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616388285 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616401210 - Labour immobility (due to geographical and occupational immobility) leads to unemployment
- Idle resources are not efficiently utilised
- Firms operate at a higher cost than necessary, leading to productive inefficiency]]> 2023-06-07 00:30:23 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616401210 Market Failure mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616410588 With increase in demand:

When supply is perfectly mobile (So):
- Shortage occurs, which drives prices up from Po to Ps
- With price rise, quantity supplied rise due to perfect mobility of resources like labour and capital
- Firms are able to respond to increase in demand and higher price

When supply is perfectly immobile (Si):
- Shortage occurs
- Quantity supplied cannot change as supply is perfectly immobile
- Production remains at Qo, but prices rise from Po to Pi
- Immobility of FOP leads to underproduction of goods
- Deadweight loss ABC]]> 2023-06-07 00:38:29 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616410588 Government Intervention mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616414649 - Improved Education System, Training and Skills Upgrading Schemes
- Improved Transport Systems and Networks
- Giving Incentives]]> 2023-06-07 00:41:55 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2616414649 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619640697 (Allocative) Efficiency: MSB=MSC
Equity: Outcome where society considers distribution of resources to be fair]]> 2023-06-10 00:07:35 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619640697 Government Intervention mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619644574 Market-based policies
- Subsidies
- Supplementing the production of essential goods and services

Command and Control policies
- Price controls (Price ceiling and Price floor)
- Quantity controls (Rationing)

Tax System and Income Support
- Progressive Income Tax System
(Higher income = Higher Tax)

Supply-side policies
- Skills training]]> 2023-06-10 00:21:16 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619644574 Causes (IHUP) mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619645318 1) Information Gaps
2) High administrative costs
3) Unintended Consequences
4) Political Considerations]]> 2023-06-10 00:24:05 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619645318 Objectives of Decision Making mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619648061 Consumers
- Maximise satisfaction

Producers
- Maximise profits

Governments
- Maximise societal welfare
- Achieve macroeconomic goals]]> 2023-06-10 00:34:21 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619648061 Considerations mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619653729 1) Constraints

2) Expected Benefits and Costs
a) Consumers/Households
- Benefit: satisfaction/utility derived
- Cost: implicit/explicit cost
b) Producers/Firms
- Benefit: revenue
- Cost: implicit/explicit cost
c) Government
- Benefit: Societal goals (economic growth and equity)
- Cost: External cost to third parties

3) Information
- Before decision made: gather info on potential costs and benefits
- After decision made: gather info on whether objective has been met and unintended consequences

4) Perspectives

5) Changes]]> 2023-06-10 00:55:35 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619653729 Decision-Making Framework mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619656272 1) Which economic agent is making the decision?
2) Objective of economic agent?
3) Before decision is made: consider constraints and costs and benefits (include perspectives if any)
4) Economic agent uses marginalist principle to decide whether to purchase, which type and when to purchase
5) After decision is made: consider intended and unintended consequences, changes in constraints, perspectives, information and internal/external environment]]> 2023-06-10 01:04:01 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619656272 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619690098 Relate to productive inefficiency]]> 2023-06-10 02:46:02 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2619690098 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2620045903 2023-06-11 03:09:19 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2620045903 Co-payment: MediShield Life mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2703043504 - Insured patient has to pay an excess before claiming insurance pay-out so that individuals will still prefer to take care of their health to avoid hospitalization and not seek more expensive and riskier services that are not required
- MediShield Life operates on a deductible and co-insurance basis
- Claim limits depending on type of expense
- Deductible is paid once every policy year
- Co-insurance is a percentage of the claimable amount that is paid on top of the deductible
- Larger bill, lower rate of co-insurance payable]]> 2023-09-14 01:27:10 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2703043504 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2717785711 2023-09-24 11:43:41 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2717785711 mohamedakif2006 https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2724658693 2023-09-28 13:24:08 UTC https://padlet.com/mohamedakif2006/wfryog2i32r5s3pu/wish/2724658693