SOLUTION: ECON 101 CUNY BCC Market Failures Public Goods and Externalities Discussion

Attached. Please let me know if you have any questions or need revisions.Running head: ECONOMICS1Economic Discussion QuestionsNameTutorCourseDateEconomic Discussion Questions2Question 1Market failure refers to a market distortion whereby the inefficient distribution of goods andservices leads to a state of disequilibrium in the market. The two primary causes of marketfailure include externalities and public goods. Externalities arise when a firm’s actions impactthe profitability of other firms within the industry directly. Public goods are goods provided bythe state or private institutions for general public consumption. Public goods cause market failuredue to the free rider effect. Inequality in consumption occurs when the consumer who does notpay taxes continues to consume the same amount as those who pay taxes.Question 2In a competitive market, firms aim at maximizing profits by producing more output when themarginal cost is equal to the price. The concepts of producer surplus and consumer surplus showthe benefits that accrue to society’s welfare when in a perfectly competitive market. The sum of aconsumer surplus and producer surplus in a competitive market equals the welfare of society.Change in equilibrium output and price in a competitive market is inefficient for the marketbecause it reduces society’s benefits by reducing the consumer and producer surpluses.Question 3The primary characteristics of public goods include non-excludable and non-rivalrous. Nonexcludable means that it’s expensive and impossible to exclude others from using a public good,such as police service. Non-rivalrous nature refers to the inability of one person to use a publicgood, such as a road to prevent other people from using the same road. Non-excludable and nonrivalrous public goods, such as security services are very expensive to provide; hence, it isimportant for it to be public provision rather than private service to ensure equal safety of allcitizens. The free-rider problem refers to the situation whereby people do not contribute to thecost of providing public good…

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