Posts tagged market

Market Failure – Brief Slides

A satiric picture of how free markets can result in failed markets.

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Reasons For Market Failures

  • Positive and negative externalities: Market will fail if it excludes the externalities involved.
  • Lack of public goods: If the price is very low, there would be short in supply of the product for the market. So the supply of the product would not be efficiently allocated to the customers
  • Under-provision of merit goods
  • Over-provision of demerit goods
  • Abuse of monopoly power: If only one firm has a monopoly on a product, it will prevent other firms from joining in the market. As a result, no other firms will join in, therefore the firm increases the price of the product. As price goes up, customers will not buy the product of the firm, therefore decreasing in supply demanded. This results in high price with low supply allocated to the market.
  • Inequality
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Tummy Tuck Jeans

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In this video, it researched about the company, “Not Your Daughter’s Jeans”, how it was successful despite the economic recession. They targetted women over 40 years-old who still want to be fashionable.  But, there aren’t any jean-companies making jeans for these women. This company knew this and started to make jeans for these 40 years-old women. These women were not in economic difficulties like 20~30’s. So the jeans this company was selling was income-inelastic. This means that these women will not buy less jeans when their income decreases. It could be said that this company has created a ‘niche market,’ which satisfies specific people with specific products.

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In what type of market are iPods categorized in?

Read the article: tutor2u: Q&A: In what type of…

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There is a controversy over whether iPods belong to monopoly market or not. Those people who say that it is not in the monopoly market categorized iPods as oligopoly market.

The arguments in favor of categorizing iPods as monopoly:

  • It dominates with the market share of more than 80 percent.
  • Apple built up ‘vertical monopoly’ by introducing generations of iPods.
  • DRM had appealed music industries to sell there products through iTunes, which strengthened this ‘vertical monopoly.’

The following points are arguments in favor of categorizing iPods as oligopoly market:

  • There are intense price competition.
  • Heavy investment on research and development.
  • Non-price competition.
  • Patented technologies.
  • Consistently creating new application.

In my opinion, iPods are in monopoly market. The arguments made in the oligopoly categorization are correct, however, I think that they’re just smart moves of Apple to dismantle the image of monopoly on their market.

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Broad Social Goals in Command and Market Economies

Today we have learned about what the primary goals of command and market economies are. We read two diaries of teenagers from different economies to compare what their economy’s goals are.

In the Student Diary A, the economy there valued economic equity, security, and stability. On the contrary, the economy in the Student Diary B valued economic freedom, growth, and efficiency.

In sum, there were 6 social goals in economics.

  1. Efficiency
  2. Equity
  3. Freedom
  4. Growth
  5. Security
  6. Stability

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We learned that neither of these economies alone can achieve all of the 6 goals. If it was a market economy, it often acheived 1, 3, and 4, but found it hard to achieve 2, 5, and 6. Similarily, planned economy often acheived 2,5, and 6, but failed to achieve 1, 3, and 4.

In summary, there are opportunity costs of choosing between market and planned economy.

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