W2.1 Market Failure

Key points

• Market failure: $Q_{Market} \ne Q_{Social}$; benchmark = PC
• Seven causes: externalities, public goods, information problems, market power, network effects, coordination failure, missing markets
• Real transitions combine several failures → one instrument isn’t enough → second best

Concepts

• Market Failure
• Externalities
• Public Goods
• Asymmetric Information
• Network Effects and Coordination Failure
• Market Power