Art In The Work Place
June 1, 2021
Advanced Statistics
June 1, 2021

Efficient or Not?

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Market efficiencies and
inefficiencies happen all around us. Consider the definition of perfect
competition and give an example from your personal life.

Now, consider the four sources of
market failure (see chart below) and examine how each led to an inefficient
allocation of resources. Take a moment to look around you and give an example
for each of the four sources of market failure. Why do you feel these are good

It is extremely difficult for some
businesses to meet all the conditions of the perfectly competitive market
structure. When this happens, market failure occurs. The result is
inefficiencies in the allocation of resources. There are four sources of market

Imperfect market structure When businesses are no longer
price takers, but they have some control over price and potential
competition. This usually results in higher prices and more restricted
production than in a perfectly competitive market structure. The formula
representing imperfect market structures is as follows: P > MC.
The existence of public goods Public goods often benefit more
than one consumer. Because nobody can be excluded from using public goods,
many times consumers do not pay for the use of these goods. This usually
results in an inefficient supply of production. The formula representing the
existence of public goods is as follows: P <>MC.
The presence of external costs and
Externalities exist when a cost or
benefit is imposed on parties outside the transaction (other than the
supplier and the consumer.) This usually results in an inefficient supply of
production as well. The formula representing externalities is as follows: P
Imperfect information Lack of complete information
regarding a product. It is not often that you can make a good choice without
all of the pertinent information. This lack of knowledge results in poor
choices being made and a misallocation of resources. The formula representing
imperfect information is as follows: P <>MC.


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