Market Failure

Week 6 Discussion

Market Failure

Market failure is a situation in which a given market does not efficiently organize production or allocate goods and services to consumers. Overcoming market failure is a significant challenge for the government, which is not easy to accomplish and may require intervention. In this Discussion, you will consider what the government can do to regulate market inefficiencies.

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Post by Day 3 a 250- to 300-word statement that addresses the following:

  • Give one example of a market failure, such as air pollution, water pollution, illegal immigration, or child labor, that is an international problem.
  • Describe the role of the U.S. government in addressing this international market failure and explain why the U.S. cannot unilaterally solve the problem.
  • Explain how individual economic decisions affect this market failure and how economic principles can be applied to modify those individual decisions to help correct the market failure.

Read a selection of your colleagues’ postings.

Respond by Day 6 to two or more of your colleagues’ postings in one or more of the following ways:

  • Ask a probing question.
  • Share an insight from having read your colleague’s posting.
  • Offer and support an opinion.
  • Make a suggestion.
  • Expand on your colleague’s posting.

Return to this Discussion in a few days to read the responses to your initial posting. Note what you learned and the insights you gained as a result of the comments your colleagues made.

Be sure to support your work with specific citations from the Learning Resources and any additional sources.

Required Resources

  • Frank, R. H., & Bernanke, B. S. (2010). Principles of microeconomics, brief edition (2nd ed.). New York, NY:McGraw-Hill/Irwin.
    • Chapter 9, “Externalities and Property Rights” (pp. 253–280)

      Chapter 9 explores how many activities generate costs or benefits that accrue to people not directly involved in those activities. These costs or benefits are referred to as externalities. The chapter also covers how externalities affect resource allocation. In addition, the chapter covers how, because of an external reason affecting competitors, one person can get an advantage without an improvement in performance.

      Focus on goods whose production generates a positive externality for consumers. Review the Coase theorem, which discusses how the situational inefficiencies resulting from externalities can be rearranged to create incentives for remedial actions.

    • Chapter 10, “Using Economics to Make Better Policy Choices” (pp. 283–301)

      Chapter 10 explores economic policies for dealing with specific problems in the environmental, safety, and health domains. The chapter also shows how careful application of basic economic principles can help society design policies that both expand the economic pie and make everyone’s slice larger. In addition, this chapter investigates circumstances under which rational citizens may vest in the government the power to constrain their own behavior in various ways.

      Focus on the cost-benefit principles and how they can help resolve trade-offs. Also, examine how the power that citizens vest in the government should be apportioned among local, state, and federal levels.


Optional Resources

  • Frank, R. H., & Bernanke, B. S. (2011). Principles of microeconomics, brief edition (2nd ed.) [Supplemental mat

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