Questions On Microeconomics Coursework : Market Failure And Externalities

1000 Words Dec 13th, 2016 4 Pages
Topics in Microeconomics coursework
“The existence of positive or negative externalities resulting from the economic activity in the market for a good or a service can lead to market failure. Allocating property rights, regardless of who holds these rights, will lead to an outcome closer to the socially optimum as compared to that resulting from government intervention.”
a) Explain the validity of this statement by defining and discussing the concepts of:
Market failure and externalities 
The types and degree of government intervention when faced with externalities 
Property rights, their allocation and the Coase theorem
The validity of the Coase theorem in the presence of transaction costs
b) Explain and then evaluate the argument that setting up a market for tradable pollution permits can achieve the target (as set by the government) level of pollution in the most cost efficient way by putting the responsibility for pollution control decisions into the hands of polluters themselves.
Market failure occurs where resources are not being used in a way that produces the best allocation for consumers and the free market mechanism fails to achieve economic efficiency. Market failure can take different forms including negative and positive externalities. Externalities are an effect whereby those not directly involved in taking a decision are affected by others actions. They occur where social costs exceed private costs; it’s a market failure because the level of…

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