CHAPTER 18:

MARKET SUCCESS, MARKET FAILURE,

AND GOVERNMENT

TABLE AND FIGURES

 Table 18.1 Four Types of Goods

Excludable Non-excludable
Rivalrous Normal goods Common property
Apples Fisheries
Dresses Common land
TV sets Wildlife
Computers Air
A seat on an aeroplane Streams

Non-rivalrous Public goods

[up to capacity]
Art galleries Defence

Museums Police

Fenced Public information

Roads Some navigation aids

Bridges Broadcast signals

 Figure 18.1 Over-fishing of a Common Property Fishery

Total cost: old technology

1080 Total cost: new technology

1000 T
800

500
350 Value of total catch

0 35 100 140 200

Number of Boats
 Figure 18.2 A Public Good

MC

p2
Price

p1
Dm

Db
p0

Da

Quantity q0
 Figure 18.3 Private and Social Cost

MCs
D Marginal
external
cost
MCp

p1
Price, cost

p0 Market price

Full
Marginal
marginal
private
social
cost
cost

q* q0

Production
 Figure 18.4 Pollution Abatement

Firm A

Firm B
Cost per tonne eliminated [£]

100

80

50

0 60 90 120
Tonnes of pollution eliminated
 Firm A Figure 18.5 Tradable Pollution Abatement
Firm B

120
Cost per tonne eliminated [£]

80

50

0 30 60 90 120

Tonnes of pollution generated

 Figure 18.6 [i] Pricing Policies for Natural Monopolies

D1 MC

ATC

p2
Price

c1

p1

0 q1 q1

Output

[i]. Losses in a falling-cost industry

 Figure 18.6 [ii] Pricing Policies for Natural Monopolies

D2 MC

p1 ATC
Price

c1
p2

0 Output q1 q2

[i]. Profits in a rising-cost industry