SlideShare ist ein Scribd-Unternehmen logo
1 von 50
Market Failures and Collective
Action
Market Equilibrium
• Equilibrium in the market results in maximum
benefits, and therefore maximum total
welfare for both the consumers and the
producers of the product.
Welfare of Consumer and Producer
• Consumer surplus measures economic welfare
from the buyer’s side.
• Producer surplus measures economic welfare
from the seller’s side.
• Consumer Surplus
– Willingness to pay is the maximum amount that a
buyer will pay for a good.
– It measures how much the buyer values the good
or service
– Consumer surplus is the buyer’s willingness to pay
for a good minus the amount the buyer actually
pays for it.
Consumer Surplus
Copyright©2003 Southwestern/Thomson Learning
Consumer
surplus
Quantity
(a) Consumer Surplus at Price P
Price
0
Demand
P1
Q1
B
A
C
• Producer Surplus
– Producer surplus is the amount a seller is paid for
a good minus the seller’s cost.
– It measures the benefit to sellers participating in a
market.
Producer Surplus
Copyright©2003 Southwestern/Thomson Learning
Producer
surplus
Quantity
(a) Producer Surplus at Price P
Price
0
Supply
B
A
C
Q1
P1
MARKET EFFICIENCY
• Efficiency is the property of a resource
allocation of maximizing the total surplus
received by all members of society.
MARKET EFFICIENCY
Consumer Surplus
= Value to buyers – Amount paid by buyers
and
Producer Surplus
= Amount received by sellers – Cost to sellers
MARKET EFFICIENCY
Total surplus
= Consumer surplus + Producer surplus
or
Total surplus
= Value to buyers – Cost to sellers
MARKET EFFICIENCY
• In addition to market efficiency, a social
planner might also care about equity – the
fairness of the distribution of well-being
among the various buyers and sellers.
Consumer and Producer Surplus in the Market Equilibrium
Copyright©2003 Southwestern/Thomson Learning
Producer
surplus
Consumer
surplus
Price
0 Quantity
Equilibrium
price
Equilibrium
quantity
Supply
Demand
A
C
B
D
E
MARKET EFFICIENCY
• Three Insights Concerning Market Outcomes
– Free markets allocate the supply of goods to the
buyers who value them most highly, as measured
by their willingness to pay.
– Free markets allocate the demand for goods to
the sellers who can produce them at least cost.
– Free markets produce the quantity of goods that
maximizes the sum of consumer and producer
surplus.
The Efficiency of the Equilibrium Quantity
Copyright©2003 Southwestern/Thomson Learning
Quantity
Price
0
Supply
Demand
Cost
to
sellers
Cost
to
sellers
Value
to
buyers
Value
to
buyers
Value to buyers is greater
than cost to sellers.
Value to buyers is less
than cost to sellers.
Equilibrium
quantity
quantity
price
Exploitative
price
offered
by
private
trader
Domestic supply curve
Total Supply curve
(Domestic s + Foreign)
Domestic Supply curve
after cooperative
A
B
C
Fall
in
cost
of
production
due
to
cooperative
P1
Q1
D1
Grains from Cooperative
P1, Q1 is initial equilibrium price and quantity
D1 is initial amount of milk purchased from domestic producers
Producer Surplus (PS) lost due to exploitative pricing of domestic milk
PS obtained by domestic milk producers when price is exploitative
ABC is the Total Surplus (TS) after cooperative is formed
TS increased after cooperative
Both consumer surplus and PS increase after cooperative
Evaluating the Market Equilibrium
• Collective Action increases Economic
Efficiency
• Free market alone is less efficient
Evaluating the Market Equilibrium
• Market Power
– If a market system is not perfectly competitive,
market power may result.
• Market power is the ability to influence prices.
• Market power can cause markets to be inefficient
because it keeps price and quantity from the
equilibrium of supply and demand.
Externalities
• Externalities
– created when a market outcome affects
individuals other than buyers and sellers in that
market.
– Welfare more than just the value to the buyers
and cost to the sellers.
• When buyers and sellers do not take
externalities into account when deciding how
much to consume and produce, the
equilibrium in the market can be inefficient.
Market Failures
• Market fails to produce the right amount
of the product
• Resources may be
• Over-allocated
• Under-allocated
LO1 5-19
• Recall: Adam Smith’s “invisible hand” of the
marketplace leads self-interested buyers and
sellers in a market to maximize the total
benefit that society can derive from a market.
But market failures can still happen.
EXTERNALITIES AND MARKET
INEFFICIENCY
• An externality refers to the uncompensated
impact of one person’s actions on the well-
being of a bystander.
• Externalities cause markets to be inefficient,
and thus fail to maximize total surplus.
EXTERNALITIES AND MARKET
INEFFICIENCY
• An externality arises...
. . . when a person engages in an activity that
influences the well-being of a bystander and yet
neither pays nor receives any compensation for
that effect.
EXTERNALITIES AND MARKET
INEFFICIENCY
• When the impact on the bystander is adverse,
the externality is called a negative externality.
• When the impact on the bystander is
beneficial, the externality is called a positive
externality.
EXTERNALITIES AND MARKET
INEFFICIENCY
• Negative Externalities
– Automobile exhaust
– Cigarette smoking
– Barking dogs (loud pets)
– Loud stereos in an apartment building
EXTERNALITIES AND MARKET
INEFFICIENCY
• Positive Externalities
– Immunizations
– Restored historic buildings
– Research into new technologies
EXTERNALITIES AND MARKET
INEFFICIENCY
• Negative externalities lead markets to
produce a larger quantity than is socially
desirable.
• Positive externalities lead markets to produce
a smaller quantity than is socially desirable.
Pollution and the Social Optimum
Equilibrium
Quantity of
Aluminum
0
Price of
Aluminum
Demand
(private value)
Supply
(private cost)
Social
cost
QOPTIMUM
Optimum
Cost of
pollution
QMARKET
Education and the Social Optimum
Copyright © 2004 South-Western
Quantity of
Education
0
Price of
Education
Demand
(private value)
Social
value
Supply
(private cost)
QMARKET QOPTIMUM
Other Reasons of Market Failure
• Incomplete Information
– Consumers do not have accurate information
about market prices or product quality
– Lack of information may give producers an
incentive to supply too much or too little
– Consumers may not buy product even though it is
beneficial to buy
– Lack of information may prevent some markets to
develop
Government Intervention
• Tax
– Negative externality
• Subsidy
– Positive externality
PRIVATE SOLUTIONS TO
EXTERNALITIES
• Moral codes and social sanctions
• Charitable organizations
• Integrating different types of businesses
• Contracting between parties
Private Solutions: Coase Theorem
• The Coase Theorem is a proposition that if private
parties can bargain without cost over the allocation of
resources, they can solve the problem of externalities
on their own.
• Whatever the initial distribution of rights, the
interested parties can reach a bargain in which
everyone is better off and the outcome is efficient
– distribution of property rights have implications
• Transactions Costs
– Transaction costs are the costs that parties incur in the
process of agreeing to and following through on a bargain.
Why Private Solutions Do Not Always Work
• Sometimes the private solution approach fails
because transaction costs can be so high that
private agreement is not possible.
• Number of individuals involved on both sides
high
• Need to resolve Collective Action Problem
PUBLIC POLICY TOWARD
EXTERNALITIES
• When externalities are significant and private
solutions are not found, government may
attempt to solve the problem through . . .
– command-and-control policies.
– market-based policies.
PUBLIC POLICY TOWARD
EXTERNALITIES
• Command-and-Control Policies
– Usually take the form of regulations:
• Forbid certain behaviors.
• Require certain behaviors.
– Examples:
• Requirements that all students be immunized.
• Stipulations on pollution emission levels set by the
Environmental Protection Agency (EPA).
PUBLIC POLICY TOWARD
EXTERNALITIES
• Market-Based Policies
– Government uses taxes and subsidies to align
private incentives with social efficiency.
– Pigovian taxes are taxes enacted to correct the
effects of a negative externality.
PUBLIC POLICY TOWARD
EXTERNALITIES
• Examples of Regulation versus Pigovian Tax
– If the EPA decides it wants to reduce the amount
of pollution coming from a specific plant. The EPA
could…
– tell the firm to reduce its pollution by a specific
amount (i.e. regulation).
– levy a tax of a given amount for each unit of
pollution the firm emits (i.e. Pigovian tax).
PUBLIC POLICY TOWARD
EXTERNALITIES
• Market-Based Policies
• Tradable pollution permits allow the voluntary
transfer of the right to pollute from one firm
to another.
– A market for these permits will eventually
develop.
– A firm that can reduce pollution at a low cost may
prefer to sell its permit to a firm that can reduce
pollution only at a high cost.
Climate change – the biggest market failure the
world has ever seen?
The equivalence of corrective taxes & pollution permits
Price of
pollution
In panel (a), the EPA sets a price on pollution by levying a corrective tax, and the demand curve
determines the quantity of pollution. In panel (b), the EPA limits the quantity of pollution by limiting the
number of pollution permits, and the demand curve determines the price of pollution. The price and
quantity of pollution are the same in the two cases.
0 Quantity of
pollution
(a) Corrective tax (b) Pollution permits
Demand for
pollution rights
Q
P
Corrective tax
1. A corrective tax sets
the price of pollution . . .
2. . . . which, together
with the demand curve,
determines the quantity
of pollution.
Price of
pollution
0 Quantity of
pollution
Demand for
pollution rights
P
Q
Supply of
pollution permits
1. Pollution
permits set
the quantity
of pollution . . .
2. . . . which, together
with the demand curve,
determines the price
of pollution.
Carbon Trading
• Carbon Trading is market-based mechanism to
incentivise reduction of greenhouse gas
emissions in a cost-effective and economically-
efficient manner
• Under Carbon trading, a country having more
emissions of carbon is able to purchase the right
to emit more and the country having less
emission trades the right to emit carbon to other
countries. More carbon emitting countries, by
this way try to keep the limit of carbon emission
specified to them
Carbon Markets
• EU Emissions Trading System (EU-ETS)
– Operates in the 28 EU countries and the three EEA-
EFTA states (Iceland, Liechtenstein and Norway)
– covers more than 11,000 power stations and
industrial plants
• Clean Development Mechanism (CDM)
– emission-reduction projects in developing
countries can earn certified emission reduction
credits.
– These saleable credits can be used by industrialized
countries to meet a part of their emission
reduction targets under the Kyoto Protocol
Carbon Credits
• A carbon credit is a generic term for any tradable certificate or permit
representing the right to emit one tonne of carbon dioxide or the mass of
another greenhouse gas with a carbon dioxide equivalent
• Carbon Credits are the production cost, for which, ultimately the consumer
pay
• Cap and trade (or emission trading) – compliance market
– a limit (or "cap") on certain types of emissions or pollutions is set, and
companies are permitted to sell (or "trade") the unused portion of their
limits to other companies that are struggling to comply.
• Offset trading (trading in project based carbon credit) – voluntary market
– restore forests, update power plants and factories or increase the energy
efficiency of buildings and transportation
– UN's Clean Development Mechanism (CDM) is the largest offsetting
scheme with almost 3,000 registered projects in the global South as of
April 2011
– Offsetting does not reduce emissions, but allows companies and
governments in the North that have the historical responsibility to clean
up the atmosphere to buy credits from projects in the South.
CDM in India
• ONGC has 6 CDM projects registered with UNFCCC
(United Nations Framework Convention on
Climate Change) and is the only PSU to achieve
this feat.
• Carbon Trading in Ankleshwar
– A sulphuric acid treatment plant, using technology
imported from Canada, and a pharmaceutical company
wanting new technology to help cut nitrogen dioxide
emissions are among those seeking revenue from
carbon credits
• NGOs and MFIs
– SEWA and Grameen Shakti for solar lighting
– CTRAN, A BASIX group company for solar water heaters
Carbon Market Failures
• No legally binding agreement to reduce emission
• More credits allocated than needed
– Low price of carbon
– No incentive for carbon saving
• "total lack of environmental integrity“ of CDM
• High transaction cost on the process for applying
for mitigation and adapting financing
• Need International Collective action
– Provision of global public good
– The transparency and comparability of national action
across a range of dimensions of effort are key to
mutual understanding and recognition of what others
are doing, as well as ensuring public accountability
Efforts
• Kyoto Protocol – 1997
– Binding international action and agreed specific
commitments from 2008 to 2012
– Entered into force 2005 and ratified by 162
countries
– "common but differentiated responsibilities.“
– Market based mechanisms (Carbon market)
– US and Australia declined to join the Protocol
• Post-Koyoto: China, India, and the United States
have all signaled that they will not ratify any
treaty that will commit them legally to reduce
CO2 emissions
United Nations Framework Convention
on Climate Change
• UNFCCC is an international environmental
treaty negotiated at the Earth Summit in Rio
de Janeiro in 1992
• Outlines how specific international treaties
(called "protocols" or "Agreements") may be
negotiated to set binding limits on greenhouse
gases.
• Conference of Parties
– The COP is the supreme decision-making body of the
Convention (UNFCCC )
– COP is to review the national communications and
emission inventories submitted by Parties. Based on
this information, the COP assesses the effects of the
measures taken by Parties and the progress made in
achieving the ultimate objective of the Convention.
– COP serve as the meeting of the Parties to the Kyoto
Protocol (CMP)
• Collection Action
COP 21 or CMP 11 - 2015
Paris Agreement
• Holding the increase in the global average
temperature to well below 2°C above pre-
industrial levels and pursuing efforts to limit the
temperature increase to 1.5°C above pre-
industrial levels
• Making finance flows consistent with a pathway
towards low greenhouse gas emissions and
climate-resilient development
• reflect equity and the principle of common but
differentiated responsibilities and respective
capabilities, in the light of different national
circumstances.
Ratification
• reflect equity and the principle of common but
differentiated responsibilities and respective
capabilities, in the light of different national
circumstances.
– USA ??? China ????
• Each country that ratifies the agreement will be
required to set a target for emission reduction or
limitation, called a "nationally determined
contribution," or "NDC," but the amount will be
voluntary
• Name and shame
• No binding constraint
• 2017 USA withdrew from Paris Agreement (four-year
exit process)

Weitere ähnliche Inhalte

Ähnlich wie Market Failures and Collective Action Solutions

Market-Efficiency-and-Market-Failure-pptx.pptx
Market-Efficiency-and-Market-Failure-pptx.pptxMarket-Efficiency-and-Market-Failure-pptx.pptx
Market-Efficiency-and-Market-Failure-pptx.pptxnizzami
 
Market-Efficiency-and-Market-Failure-pptx.pptx
Market-Efficiency-and-Market-Failure-pptx.pptxMarket-Efficiency-and-Market-Failure-pptx.pptx
Market-Efficiency-and-Market-Failure-pptx.pptxnizzami
 
Equity and Efficiency revision.pptx
Equity and Efficiency revision.pptxEquity and Efficiency revision.pptx
Equity and Efficiency revision.pptxJon Newland
 
Microeconomics Externalities
Microeconomics ExternalitiesMicroeconomics Externalities
Microeconomics ExternalitiesRakesh Mehta
 
Chapter 2 efficiency, externalities, consumer surplus, producer surplus etc
Chapter 2   efficiency, externalities, consumer surplus, producer surplus etcChapter 2   efficiency, externalities, consumer surplus, producer surplus etc
Chapter 2 efficiency, externalities, consumer surplus, producer surplus etcutkwadwo
 
Be chap8 the economics of information & market failure
Be chap8 the economics of information & market failureBe chap8 the economics of information & market failure
Be chap8 the economics of information & market failurefadzliskc
 
Chapter 9 The Economics Of Information & Market Failure
Chapter 9 The Economics Of Information & Market Failure  �Chapter 9 The Economics Of Information & Market Failure  �
Chapter 9 The Economics Of Information & Market Failure Firdaus Fitri Zainal Abidin
 
Impact of Business on the Community: Efficiency in Perfectly Competitive Markets
Impact of Business on the Community: Efficiency in Perfectly Competitive MarketsImpact of Business on the Community: Efficiency in Perfectly Competitive Markets
Impact of Business on the Community: Efficiency in Perfectly Competitive MarketsBobbyPabores1
 
Chapter 9 the economics of information & market failure
Chapter 9   the economics of information & market failureChapter 9   the economics of information & market failure
Chapter 9 the economics of information & market failureskceducation
 
Externalities Part III
Externalities Part IIIExternalities Part III
Externalities Part IIIreoharsa
 
Monopoly - Profit-Maximization in Monopoly - Economics
Monopoly - Profit-Maximization in Monopoly - EconomicsMonopoly - Profit-Maximization in Monopoly - Economics
Monopoly - Profit-Maximization in Monopoly - EconomicsFaHaD .H. NooR
 
consumer and producer surplus
consumer and producer surplusconsumer and producer surplus
consumer and producer surplussehrish628
 
Market Failure_MAF.ppt
Market Failure_MAF.pptMarket Failure_MAF.ppt
Market Failure_MAF.ppthafidhisaidi
 
Public Administration Government and Tax
Public Administration Government and TaxPublic Administration Government and Tax
Public Administration Government and TaxHeinHtet844399
 
ch01_BE7e_Instructor_PowerPoint.ppt
ch01_BE7e_Instructor_PowerPoint.pptch01_BE7e_Instructor_PowerPoint.ppt
ch01_BE7e_Instructor_PowerPoint.pptKaneezElahi
 
Ch2_Supply and Demand.pptx
Ch2_Supply and Demand.pptxCh2_Supply and Demand.pptx
Ch2_Supply and Demand.pptxTaimaFiras
 
Complete Economic Environment & Business Unit 4 revision
Complete Economic Environment & Business Unit 4 revisionComplete Economic Environment & Business Unit 4 revision
Complete Economic Environment & Business Unit 4 revisionManishadhokia3105
 
profit maximisation under monoply
profit maximisation under monoplyprofit maximisation under monoply
profit maximisation under monoplyShwetaPajni
 

Ähnlich wie Market Failures and Collective Action Solutions (20)

Market-Efficiency-and-Market-Failure-pptx.pptx
Market-Efficiency-and-Market-Failure-pptx.pptxMarket-Efficiency-and-Market-Failure-pptx.pptx
Market-Efficiency-and-Market-Failure-pptx.pptx
 
Market-Efficiency-and-Market-Failure-pptx.pptx
Market-Efficiency-and-Market-Failure-pptx.pptxMarket-Efficiency-and-Market-Failure-pptx.pptx
Market-Efficiency-and-Market-Failure-pptx.pptx
 
Equity and Efficiency revision.pptx
Equity and Efficiency revision.pptxEquity and Efficiency revision.pptx
Equity and Efficiency revision.pptx
 
Microeconomics Externalities
Microeconomics ExternalitiesMicroeconomics Externalities
Microeconomics Externalities
 
Chapter 2 efficiency, externalities, consumer surplus, producer surplus etc
Chapter 2   efficiency, externalities, consumer surplus, producer surplus etcChapter 2   efficiency, externalities, consumer surplus, producer surplus etc
Chapter 2 efficiency, externalities, consumer surplus, producer surplus etc
 
Be chap8 the economics of information & market failure
Be chap8 the economics of information & market failureBe chap8 the economics of information & market failure
Be chap8 the economics of information & market failure
 
Chapter 9 The Economics Of Information & Market Failure
Chapter 9 The Economics Of Information & Market Failure  �Chapter 9 The Economics Of Information & Market Failure  �
Chapter 9 The Economics Of Information & Market Failure
 
Impact of Business on the Community: Efficiency in Perfectly Competitive Markets
Impact of Business on the Community: Efficiency in Perfectly Competitive MarketsImpact of Business on the Community: Efficiency in Perfectly Competitive Markets
Impact of Business on the Community: Efficiency in Perfectly Competitive Markets
 
Chapter 9 the economics of information & market failure
Chapter 9   the economics of information & market failureChapter 9   the economics of information & market failure
Chapter 9 the economics of information & market failure
 
Externalities Part III
Externalities Part IIIExternalities Part III
Externalities Part III
 
goods.pptx
goods.pptxgoods.pptx
goods.pptx
 
Monopoly - Profit-Maximization in Monopoly - Economics
Monopoly - Profit-Maximization in Monopoly - EconomicsMonopoly - Profit-Maximization in Monopoly - Economics
Monopoly - Profit-Maximization in Monopoly - Economics
 
consumer and producer surplus
consumer and producer surplusconsumer and producer surplus
consumer and producer surplus
 
Market Failure_MAF.ppt
Market Failure_MAF.pptMarket Failure_MAF.ppt
Market Failure_MAF.ppt
 
Public Administration Government and Tax
Public Administration Government and TaxPublic Administration Government and Tax
Public Administration Government and Tax
 
ch01_BE7e_Instructor_PowerPoint.ppt
ch01_BE7e_Instructor_PowerPoint.pptch01_BE7e_Instructor_PowerPoint.ppt
ch01_BE7e_Instructor_PowerPoint.ppt
 
Ch2_Supply and Demand.pptx
Ch2_Supply and Demand.pptxCh2_Supply and Demand.pptx
Ch2_Supply and Demand.pptx
 
Complete Economic Environment & Business Unit 4 revision
Complete Economic Environment & Business Unit 4 revisionComplete Economic Environment & Business Unit 4 revision
Complete Economic Environment & Business Unit 4 revision
 
Imprefect
ImprefectImprefect
Imprefect
 
profit maximisation under monoply
profit maximisation under monoplyprofit maximisation under monoply
profit maximisation under monoply
 

Kürzlich hochgeladen

Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...ssuserf63bd7
 
Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...Americas Got Grants
 
Guide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDFGuide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDFChandresh Chudasama
 
Onemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
Onemonitar Android Spy App Features: Explore Advanced Monitoring CapabilitiesOnemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
Onemonitar Android Spy App Features: Explore Advanced Monitoring CapabilitiesOne Monitar
 
trending-flavors-and-ingredients-in-salty-snacks-us-2024_Redacted-V2.pdf
trending-flavors-and-ingredients-in-salty-snacks-us-2024_Redacted-V2.pdftrending-flavors-and-ingredients-in-salty-snacks-us-2024_Redacted-V2.pdf
trending-flavors-and-ingredients-in-salty-snacks-us-2024_Redacted-V2.pdfMintel Group
 
Supercharge Your eCommerce Stores-acowebs
Supercharge Your eCommerce Stores-acowebsSupercharge Your eCommerce Stores-acowebs
Supercharge Your eCommerce Stores-acowebsGOKUL JS
 
TriStar Gold Corporate Presentation - April 2024
TriStar Gold Corporate Presentation - April 2024TriStar Gold Corporate Presentation - April 2024
TriStar Gold Corporate Presentation - April 2024Adnet Communications
 
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deckPitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deckHajeJanKamps
 
WSMM Media and Entertainment Feb_March_Final.pdf
WSMM Media and Entertainment Feb_March_Final.pdfWSMM Media and Entertainment Feb_March_Final.pdf
WSMM Media and Entertainment Feb_March_Final.pdfJamesConcepcion7
 
Send Files | Sendbig.comSend Files | Sendbig.com
Send Files | Sendbig.comSend Files | Sendbig.comSend Files | Sendbig.comSend Files | Sendbig.com
Send Files | Sendbig.comSend Files | Sendbig.comSendBig4
 
Pitch Deck Teardown: Xpanceo's $40M Seed deck
Pitch Deck Teardown: Xpanceo's $40M Seed deckPitch Deck Teardown: Xpanceo's $40M Seed deck
Pitch Deck Teardown: Xpanceo's $40M Seed deckHajeJanKamps
 
1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdf1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdfShaun Heinrichs
 
APRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdfAPRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdfRbc Rbcua
 
Unveiling the Soundscape Music for Psychedelic Experiences
Unveiling the Soundscape Music for Psychedelic ExperiencesUnveiling the Soundscape Music for Psychedelic Experiences
Unveiling the Soundscape Music for Psychedelic ExperiencesDoe Paoro
 
Fordham -How effective decision-making is within the IT department - Analysis...
Fordham -How effective decision-making is within the IT department - Analysis...Fordham -How effective decision-making is within the IT department - Analysis...
Fordham -How effective decision-making is within the IT department - Analysis...Peter Ward
 
Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03DallasHaselhorst
 
Buy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail AccountsBuy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail AccountsBuy Verified Accounts
 

Kürzlich hochgeladen (20)

Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
Intermediate Accounting, Volume 2, 13th Canadian Edition by Donald E. Kieso t...
 
Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...Church Building Grants To Assist With New Construction, Additions, And Restor...
Church Building Grants To Assist With New Construction, Additions, And Restor...
 
Guide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDFGuide Complete Set of Residential Architectural Drawings PDF
Guide Complete Set of Residential Architectural Drawings PDF
 
Onemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
Onemonitar Android Spy App Features: Explore Advanced Monitoring CapabilitiesOnemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
Onemonitar Android Spy App Features: Explore Advanced Monitoring Capabilities
 
trending-flavors-and-ingredients-in-salty-snacks-us-2024_Redacted-V2.pdf
trending-flavors-and-ingredients-in-salty-snacks-us-2024_Redacted-V2.pdftrending-flavors-and-ingredients-in-salty-snacks-us-2024_Redacted-V2.pdf
trending-flavors-and-ingredients-in-salty-snacks-us-2024_Redacted-V2.pdf
 
Supercharge Your eCommerce Stores-acowebs
Supercharge Your eCommerce Stores-acowebsSupercharge Your eCommerce Stores-acowebs
Supercharge Your eCommerce Stores-acowebs
 
TriStar Gold Corporate Presentation - April 2024
TriStar Gold Corporate Presentation - April 2024TriStar Gold Corporate Presentation - April 2024
TriStar Gold Corporate Presentation - April 2024
 
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deckPitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
Pitch Deck Teardown: Geodesic.Life's $500k Pre-seed deck
 
The Bizz Quiz-E-Summit-E-Cell-IITPatna.pptx
The Bizz Quiz-E-Summit-E-Cell-IITPatna.pptxThe Bizz Quiz-E-Summit-E-Cell-IITPatna.pptx
The Bizz Quiz-E-Summit-E-Cell-IITPatna.pptx
 
WSMM Media and Entertainment Feb_March_Final.pdf
WSMM Media and Entertainment Feb_March_Final.pdfWSMM Media and Entertainment Feb_March_Final.pdf
WSMM Media and Entertainment Feb_March_Final.pdf
 
WAM Corporate Presentation April 12 2024.pdf
WAM Corporate Presentation April 12 2024.pdfWAM Corporate Presentation April 12 2024.pdf
WAM Corporate Presentation April 12 2024.pdf
 
Send Files | Sendbig.comSend Files | Sendbig.com
Send Files | Sendbig.comSend Files | Sendbig.comSend Files | Sendbig.comSend Files | Sendbig.com
Send Files | Sendbig.comSend Files | Sendbig.com
 
Corporate Profile 47Billion Information Technology
Corporate Profile 47Billion Information TechnologyCorporate Profile 47Billion Information Technology
Corporate Profile 47Billion Information Technology
 
Pitch Deck Teardown: Xpanceo's $40M Seed deck
Pitch Deck Teardown: Xpanceo's $40M Seed deckPitch Deck Teardown: Xpanceo's $40M Seed deck
Pitch Deck Teardown: Xpanceo's $40M Seed deck
 
1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdf1911 Gold Corporate Presentation Apr 2024.pdf
1911 Gold Corporate Presentation Apr 2024.pdf
 
APRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdfAPRIL2024_UKRAINE_xml_0000000000000 .pdf
APRIL2024_UKRAINE_xml_0000000000000 .pdf
 
Unveiling the Soundscape Music for Psychedelic Experiences
Unveiling the Soundscape Music for Psychedelic ExperiencesUnveiling the Soundscape Music for Psychedelic Experiences
Unveiling the Soundscape Music for Psychedelic Experiences
 
Fordham -How effective decision-making is within the IT department - Analysis...
Fordham -How effective decision-making is within the IT department - Analysis...Fordham -How effective decision-making is within the IT department - Analysis...
Fordham -How effective decision-making is within the IT department - Analysis...
 
Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03Cybersecurity Awareness Training Presentation v2024.03
Cybersecurity Awareness Training Presentation v2024.03
 
Buy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail AccountsBuy gmail accounts.pdf Buy Old Gmail Accounts
Buy gmail accounts.pdf Buy Old Gmail Accounts
 

Market Failures and Collective Action Solutions

  • 1. Market Failures and Collective Action
  • 2. Market Equilibrium • Equilibrium in the market results in maximum benefits, and therefore maximum total welfare for both the consumers and the producers of the product.
  • 3. Welfare of Consumer and Producer • Consumer surplus measures economic welfare from the buyer’s side. • Producer surplus measures economic welfare from the seller’s side.
  • 4. • Consumer Surplus – Willingness to pay is the maximum amount that a buyer will pay for a good. – It measures how much the buyer values the good or service – Consumer surplus is the buyer’s willingness to pay for a good minus the amount the buyer actually pays for it.
  • 5. Consumer Surplus Copyright©2003 Southwestern/Thomson Learning Consumer surplus Quantity (a) Consumer Surplus at Price P Price 0 Demand P1 Q1 B A C
  • 6. • Producer Surplus – Producer surplus is the amount a seller is paid for a good minus the seller’s cost. – It measures the benefit to sellers participating in a market.
  • 7. Producer Surplus Copyright©2003 Southwestern/Thomson Learning Producer surplus Quantity (a) Producer Surplus at Price P Price 0 Supply B A C Q1 P1
  • 8. MARKET EFFICIENCY • Efficiency is the property of a resource allocation of maximizing the total surplus received by all members of society.
  • 9. MARKET EFFICIENCY Consumer Surplus = Value to buyers – Amount paid by buyers and Producer Surplus = Amount received by sellers – Cost to sellers
  • 10. MARKET EFFICIENCY Total surplus = Consumer surplus + Producer surplus or Total surplus = Value to buyers – Cost to sellers
  • 11. MARKET EFFICIENCY • In addition to market efficiency, a social planner might also care about equity – the fairness of the distribution of well-being among the various buyers and sellers.
  • 12. Consumer and Producer Surplus in the Market Equilibrium Copyright©2003 Southwestern/Thomson Learning Producer surplus Consumer surplus Price 0 Quantity Equilibrium price Equilibrium quantity Supply Demand A C B D E
  • 13. MARKET EFFICIENCY • Three Insights Concerning Market Outcomes – Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. – Free markets allocate the demand for goods to the sellers who can produce them at least cost. – Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.
  • 14. The Efficiency of the Equilibrium Quantity Copyright©2003 Southwestern/Thomson Learning Quantity Price 0 Supply Demand Cost to sellers Cost to sellers Value to buyers Value to buyers Value to buyers is greater than cost to sellers. Value to buyers is less than cost to sellers. Equilibrium quantity
  • 15. quantity price Exploitative price offered by private trader Domestic supply curve Total Supply curve (Domestic s + Foreign) Domestic Supply curve after cooperative A B C Fall in cost of production due to cooperative P1 Q1 D1 Grains from Cooperative P1, Q1 is initial equilibrium price and quantity D1 is initial amount of milk purchased from domestic producers Producer Surplus (PS) lost due to exploitative pricing of domestic milk PS obtained by domestic milk producers when price is exploitative ABC is the Total Surplus (TS) after cooperative is formed TS increased after cooperative Both consumer surplus and PS increase after cooperative
  • 16. Evaluating the Market Equilibrium • Collective Action increases Economic Efficiency • Free market alone is less efficient
  • 17. Evaluating the Market Equilibrium • Market Power – If a market system is not perfectly competitive, market power may result. • Market power is the ability to influence prices. • Market power can cause markets to be inefficient because it keeps price and quantity from the equilibrium of supply and demand.
  • 18. Externalities • Externalities – created when a market outcome affects individuals other than buyers and sellers in that market. – Welfare more than just the value to the buyers and cost to the sellers. • When buyers and sellers do not take externalities into account when deciding how much to consume and produce, the equilibrium in the market can be inefficient.
  • 19. Market Failures • Market fails to produce the right amount of the product • Resources may be • Over-allocated • Under-allocated LO1 5-19
  • 20. • Recall: Adam Smith’s “invisible hand” of the marketplace leads self-interested buyers and sellers in a market to maximize the total benefit that society can derive from a market. But market failures can still happen.
  • 21. EXTERNALITIES AND MARKET INEFFICIENCY • An externality refers to the uncompensated impact of one person’s actions on the well- being of a bystander. • Externalities cause markets to be inefficient, and thus fail to maximize total surplus.
  • 22. EXTERNALITIES AND MARKET INEFFICIENCY • An externality arises... . . . when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect.
  • 23. EXTERNALITIES AND MARKET INEFFICIENCY • When the impact on the bystander is adverse, the externality is called a negative externality. • When the impact on the bystander is beneficial, the externality is called a positive externality.
  • 24. EXTERNALITIES AND MARKET INEFFICIENCY • Negative Externalities – Automobile exhaust – Cigarette smoking – Barking dogs (loud pets) – Loud stereos in an apartment building
  • 25. EXTERNALITIES AND MARKET INEFFICIENCY • Positive Externalities – Immunizations – Restored historic buildings – Research into new technologies
  • 26. EXTERNALITIES AND MARKET INEFFICIENCY • Negative externalities lead markets to produce a larger quantity than is socially desirable. • Positive externalities lead markets to produce a smaller quantity than is socially desirable.
  • 27. Pollution and the Social Optimum Equilibrium Quantity of Aluminum 0 Price of Aluminum Demand (private value) Supply (private cost) Social cost QOPTIMUM Optimum Cost of pollution QMARKET
  • 28. Education and the Social Optimum Copyright © 2004 South-Western Quantity of Education 0 Price of Education Demand (private value) Social value Supply (private cost) QMARKET QOPTIMUM
  • 29. Other Reasons of Market Failure • Incomplete Information – Consumers do not have accurate information about market prices or product quality – Lack of information may give producers an incentive to supply too much or too little – Consumers may not buy product even though it is beneficial to buy – Lack of information may prevent some markets to develop
  • 30. Government Intervention • Tax – Negative externality • Subsidy – Positive externality
  • 31. PRIVATE SOLUTIONS TO EXTERNALITIES • Moral codes and social sanctions • Charitable organizations • Integrating different types of businesses • Contracting between parties
  • 32. Private Solutions: Coase Theorem • The Coase Theorem is a proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own. • Whatever the initial distribution of rights, the interested parties can reach a bargain in which everyone is better off and the outcome is efficient – distribution of property rights have implications • Transactions Costs – Transaction costs are the costs that parties incur in the process of agreeing to and following through on a bargain.
  • 33. Why Private Solutions Do Not Always Work • Sometimes the private solution approach fails because transaction costs can be so high that private agreement is not possible. • Number of individuals involved on both sides high • Need to resolve Collective Action Problem
  • 34. PUBLIC POLICY TOWARD EXTERNALITIES • When externalities are significant and private solutions are not found, government may attempt to solve the problem through . . . – command-and-control policies. – market-based policies.
  • 35. PUBLIC POLICY TOWARD EXTERNALITIES • Command-and-Control Policies – Usually take the form of regulations: • Forbid certain behaviors. • Require certain behaviors. – Examples: • Requirements that all students be immunized. • Stipulations on pollution emission levels set by the Environmental Protection Agency (EPA).
  • 36. PUBLIC POLICY TOWARD EXTERNALITIES • Market-Based Policies – Government uses taxes and subsidies to align private incentives with social efficiency. – Pigovian taxes are taxes enacted to correct the effects of a negative externality.
  • 37. PUBLIC POLICY TOWARD EXTERNALITIES • Examples of Regulation versus Pigovian Tax – If the EPA decides it wants to reduce the amount of pollution coming from a specific plant. The EPA could… – tell the firm to reduce its pollution by a specific amount (i.e. regulation). – levy a tax of a given amount for each unit of pollution the firm emits (i.e. Pigovian tax).
  • 38. PUBLIC POLICY TOWARD EXTERNALITIES • Market-Based Policies • Tradable pollution permits allow the voluntary transfer of the right to pollute from one firm to another. – A market for these permits will eventually develop. – A firm that can reduce pollution at a low cost may prefer to sell its permit to a firm that can reduce pollution only at a high cost.
  • 39. Climate change – the biggest market failure the world has ever seen?
  • 40. The equivalence of corrective taxes & pollution permits Price of pollution In panel (a), the EPA sets a price on pollution by levying a corrective tax, and the demand curve determines the quantity of pollution. In panel (b), the EPA limits the quantity of pollution by limiting the number of pollution permits, and the demand curve determines the price of pollution. The price and quantity of pollution are the same in the two cases. 0 Quantity of pollution (a) Corrective tax (b) Pollution permits Demand for pollution rights Q P Corrective tax 1. A corrective tax sets the price of pollution . . . 2. . . . which, together with the demand curve, determines the quantity of pollution. Price of pollution 0 Quantity of pollution Demand for pollution rights P Q Supply of pollution permits 1. Pollution permits set the quantity of pollution . . . 2. . . . which, together with the demand curve, determines the price of pollution.
  • 41. Carbon Trading • Carbon Trading is market-based mechanism to incentivise reduction of greenhouse gas emissions in a cost-effective and economically- efficient manner • Under Carbon trading, a country having more emissions of carbon is able to purchase the right to emit more and the country having less emission trades the right to emit carbon to other countries. More carbon emitting countries, by this way try to keep the limit of carbon emission specified to them
  • 42. Carbon Markets • EU Emissions Trading System (EU-ETS) – Operates in the 28 EU countries and the three EEA- EFTA states (Iceland, Liechtenstein and Norway) – covers more than 11,000 power stations and industrial plants • Clean Development Mechanism (CDM) – emission-reduction projects in developing countries can earn certified emission reduction credits. – These saleable credits can be used by industrialized countries to meet a part of their emission reduction targets under the Kyoto Protocol
  • 43. Carbon Credits • A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent • Carbon Credits are the production cost, for which, ultimately the consumer pay • Cap and trade (or emission trading) – compliance market – a limit (or "cap") on certain types of emissions or pollutions is set, and companies are permitted to sell (or "trade") the unused portion of their limits to other companies that are struggling to comply. • Offset trading (trading in project based carbon credit) – voluntary market – restore forests, update power plants and factories or increase the energy efficiency of buildings and transportation – UN's Clean Development Mechanism (CDM) is the largest offsetting scheme with almost 3,000 registered projects in the global South as of April 2011 – Offsetting does not reduce emissions, but allows companies and governments in the North that have the historical responsibility to clean up the atmosphere to buy credits from projects in the South.
  • 44. CDM in India • ONGC has 6 CDM projects registered with UNFCCC (United Nations Framework Convention on Climate Change) and is the only PSU to achieve this feat. • Carbon Trading in Ankleshwar – A sulphuric acid treatment plant, using technology imported from Canada, and a pharmaceutical company wanting new technology to help cut nitrogen dioxide emissions are among those seeking revenue from carbon credits • NGOs and MFIs – SEWA and Grameen Shakti for solar lighting – CTRAN, A BASIX group company for solar water heaters
  • 45. Carbon Market Failures • No legally binding agreement to reduce emission • More credits allocated than needed – Low price of carbon – No incentive for carbon saving • "total lack of environmental integrity“ of CDM • High transaction cost on the process for applying for mitigation and adapting financing • Need International Collective action – Provision of global public good – The transparency and comparability of national action across a range of dimensions of effort are key to mutual understanding and recognition of what others are doing, as well as ensuring public accountability
  • 46. Efforts • Kyoto Protocol – 1997 – Binding international action and agreed specific commitments from 2008 to 2012 – Entered into force 2005 and ratified by 162 countries – "common but differentiated responsibilities.“ – Market based mechanisms (Carbon market) – US and Australia declined to join the Protocol • Post-Koyoto: China, India, and the United States have all signaled that they will not ratify any treaty that will commit them legally to reduce CO2 emissions
  • 47. United Nations Framework Convention on Climate Change • UNFCCC is an international environmental treaty negotiated at the Earth Summit in Rio de Janeiro in 1992 • Outlines how specific international treaties (called "protocols" or "Agreements") may be negotiated to set binding limits on greenhouse gases.
  • 48. • Conference of Parties – The COP is the supreme decision-making body of the Convention (UNFCCC ) – COP is to review the national communications and emission inventories submitted by Parties. Based on this information, the COP assesses the effects of the measures taken by Parties and the progress made in achieving the ultimate objective of the Convention. – COP serve as the meeting of the Parties to the Kyoto Protocol (CMP) • Collection Action
  • 49. COP 21 or CMP 11 - 2015 Paris Agreement • Holding the increase in the global average temperature to well below 2°C above pre- industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre- industrial levels • Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development • reflect equity and the principle of common but differentiated responsibilities and respective capabilities, in the light of different national circumstances.
  • 50. Ratification • reflect equity and the principle of common but differentiated responsibilities and respective capabilities, in the light of different national circumstances. – USA ??? China ???? • Each country that ratifies the agreement will be required to set a target for emission reduction or limitation, called a "nationally determined contribution," or "NDC," but the amount will be voluntary • Name and shame • No binding constraint • 2017 USA withdrew from Paris Agreement (four-year exit process)