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Part IIa: Paper 1 General Equilibrium and Welfare Economics Dr Hamish Low

2. Outline: Market Failure. Sources of Market FailurePublic goodsdefinitionmarket provisionoptimal provisioninformation failureVickery auctions and Clarke-Groves taxes. 3. Sources of Market Failure. Asymmetric (private) informationExternalitiesPublic goodsMarket power. 4. Public Goods:

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Part IIa: Paper 1 General Equilibrium and Welfare Economics Dr Hamish Low

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    1. 1 Lecture 7 Part IIa: Paper 1 General Equilibrium and Welfare Economics Dr Hamish Low

    2. 2 Outline: Market Failure Sources of Market Failure Public goods definition market provision optimal provision information failure Vickery auctions and Clarke-Groves taxes

    3. 3 Sources of Market Failure Asymmetric (private) information Externalities Public goods Market power

    4. 4 Public Goods: Examples National defense: all inhabitants are simultaneously protected Radio broadcast: received simultaneously by all listeners in range of the transmitter If many consumers benefit from a single unit of provision the fundamental theorems do not apply competitive market may not reach Pareto efficient allocation not all Pareto efficient allocations are achievable by the market

    5. 5 Public Goods Definition A pure public good satisfies: Nonexcludability If the public good is supplied, no consumer can be excluded from consuming it Nonrivalry Consumption of the public good by one consumer does not reduce the quantity available for consumption by any other A private good is excludable at no cost and is perfectly rivalrous

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