Market Failure, Spillover Costs, and Spillover Benefits

The objective of this question is to help you understand some of the details of market failure, spillover costs, and spillover benefits down to the level of resource allocation problems.

Market Failure. please use the material covered in the topic called The US Economy –Private and Public Sectors

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•State the definition of a market faiure found in the slides.

•List and explain the 4causesof market failure included in the slides, including how they actually lead to over or under allocation of resources (market failure).Don’t miss this part! Must be very specific.

•State the definition of spillovers costs.

•Give two examples of a spillover cost situation and explain why your examples are correct.

•Explain in detail, the economic effects of spillover costs. Specifically,

•Explain why a firm would want to offload some of its production costs to a3rdparty.

•Explain how output decisions are affected by the offloading of production costs.

•Explain how resource allocation is affected by the output decisions.

•Explain how the new resource allocations lead to market failure, defined as the over or under allocation of resources.

•Explain in detail, how spillover costs are corrected by the two approaches covered in the slides. Be very detailed.

•State the definition of spillover benefits.

•Give two examples of a spillover benefit situation and explain why your examples are correct. Be specific.

•Explain in detail, the economic effects of spillover benefits.

•Explain how the 3rdparty responds to receiving unexpected benefits.

•Explain how the behavior of the 3rdparty impacts the producers’ perception of demand.

•Explain how the producers’ perception of demand leads to changes in the output decisions of the firm.

•Explain how those output decisions lead to market failure, defined as the over or under allocation of resources.

 

•Thoroughly and completely explain how spill over benefits are corrected and the economic implications of the corrections.

Explain the two approaches used to solve the spillover benefit problem and how they work to solve the problem.