Markets & failure
Markets work well when the costs and benefits land on the people choosing. They fail when someone else pays, information is bad, or one seller dominates.
- Demand
- Private cost
- Social cost
Market sells 8 units at £6.00. Counting the spill, 6 units at £7.00 would be better. The extra units look cheap because someone else pays.
Toy numbers. The spill is a cost left out of the price.
Takeaway
- A market can be efficient and still miss a cost.
- Externalities, public goods and thin competition are the usual failure modes.
- “Failure” means the price signal is incomplete, not that trade is bad.