AP Micro-Economics, Daniel Burns
Application report: Dealing with market failure
Find a real-world example of one of the three types of market failure (imperfect competition, public goods, and externalities) and analyze it using the concepts and terminology we have studied. The paper should include:
- A description of how the market outcome differs from the efficient outcome and its effects on producer surplus, consumer surplus, and deadweight loss.
- A properly labeled graph illustrating what you described in part 1.
- A government policy option to correct the inefficiency.
- A statement on whether the option you mention in part 3 is a good idea.
Part 4 is where free market advocates say whether you think the government should get involved in this particular area. Theoretically it may be possible for government to correct the inefficiency, but is that really a good idea? Will it create inefficiencies in other areas (wasted tax dollars for example), and what are the effects of big government on personal freedom?
Your final report might be about 500-600 words, although part 4 could go on longer if you want it to. As always, I’m looking for a sound line of reasoning more than any one particular answer.
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