Summarized from Greg Mankiw’s Principles of Economics, Chapter 7 of 36 CHAPTER 7 - CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS Section 14 of chapter 7 MARKET EFFICIENCY AND MARKET FAILURE To conclude free markets are efficient we make assumptions about how markets work. When these assumptions do not hold, the conclusion a market at equilibrium is efficient may not be true. We have assumed markets are perfectly competitive. However, competition is often not perfect. In some markets a single buyer or seller or a small group may be able to influence market prices. This ability to influence prices is called “market power.” Market power causes markets to be inefficient because it keeps the price and quantity away from the supply and demand equilibrium. We also assumed outcome in a market only matters to the buyers and sellers in that market. The decisions of buyers and sellers sometimes affect people who do not participate in the market. Pollutants emitted during production of a product affect not only those who make and use the product, but everyone who breathes air or drinks water that has been polluted. These “externalities” cause welfare in a market to depend on more than the buyers’ value and the sellers’ cost. Because buyers and sellers do not heavily weigh these side effect externalities when deciding how much to consume and produce, the equilibrium in a market can be inefficient from the view of overall society. Market power and externalities are main components of a phenomenon called “market failure” - the inability of some free markets to efficiently allocate resources in the view of overall society. When free markets fail · government regulation can potentially remedy the problem… · and increase overall society economic efficiency and welfare Economists study market failure and recommend policies for correction. (end of chapter 7) … 課税と国際貿易の影響 かぜいとこくさいぼうえきのえいきょう effects of taxation and international trade
Posted on: Mon, 07 Oct 2013 12:20:43 +0000