No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Thirteen: Market “Failure” and the Role of the Government 301 DESIRED LEARNING OBJECTIVES At the conclusion of this chapter, the student should be able to… § § Explain why markets tend toward allocative efficiency § § Demonstrate (through supply and demand analysis) why markets fail to produce a socially desirable output level when there are externalities § § Describe why calculating a socially optimal output level is impossible § § Explain what it means to “internalize the externality” § § Relate why market failure doesn’t necessarily justify government action § § Discuss what the “knowledge” problem is for a government regulator § § Summarize how markets correct externalities § § Define public goods § § Discuss why the benefits of monopoly may exceed the costs § § Assess whether the saying “the rich get richer and the poor get poorer” is true, economically