Market failure
Business Dictionary definition- Situation where resources cannot be efficiently allocated due to the breakdown of price mechanism caused by factors such as establishment of monopolies. See also market inefficiency.
Investopedia definition- An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This is a direct result of a lack of certain economically ideal factors, which prevents equilibrium.
Explanation
Market failures have negative effects on the economy because an optimal allocation of resources is not attained. In other words, the social costs of producing the good or service (all of the opportunity costs of the input resources used in its creation) are not minimized, and this results in a waste of some resources.Examples
- The common argument against minimum wage laws. Minimum wage laws set wages above the going market-clearing wage in an attempt to raise market wages. Critics argue that this higher wage cost will cause employers to hire fewer minimum-wage employees than before the law was implemented. As a result, more minimum wage workers are left unemployed, creating a social cost and resulting in market failure.
- Debate over tuition fees is central to the funding issues that universities will have to contend with. Staff who work in universities are paid less well than their counterparts in other branches of education, particularly in schools. The salary range for a qualified teacher on the main pay scale from September 2005 will range from £22,002 to £30,642 whereas the range for a lecturer can range from £23,643 to £29,479 with the requirements in terms of qualifications likely to include the necessity of a masters degree and possibly a doctorate. More to the debate
- As the UK General Election looms, the main political parties jostle for popularity in voters' eyes. With the trickle of new policy ideas threatening to become a flood, it appears that government has a great deal of control over our lives. But how true is this? And do people want a 'nanny' state or do they see government as an irrelevant burden? More to the Election opinions
- Market Failure: Pollution, the Environment and Externalities. A report suggests that overall incidents of serious pollution were 20% lower than in 2001 but cautions against any complacency and identifies well known businesses as being guilty of repeat offences. Environment being a market failure continued...
- Transport Policy and Congestion Charging. The congestion charge introduced in London is one year old and as part of its birthday, different groups have been reflecting on the success or otherwise of the policy. Whilst the charge clearly affects those who live in the London area and who have to live and work there, it has relevance for many other towns and cities in the UK, given that they have been watching the progress of the London charge with interest. If the charge appears to work there would be an incentive to introduce similar schemes in other towns and cities that suffer from congestion - and that could mean almost anywhere! more to transport as a market failure
- It is difficult to go anywhere these days without some mention of the pensions time bomb.it is an issue that has relevance for us all because not only do we need to think some years ahead about how we are going to live when we no longer work, but it is young people today who will have to take on the burden of paying for an ever growing army of people who may not have sufficient funds on which to live. more on pension
- The internet as a market failure more in detail
- Credit expansion which Charles Kindleberger outlines in his classic Manias, Panics and Crashes. There were no asset bubbles during the Bretton Woods era but there have been m
- any in the period of rapid credit growth since. how the financial system is a market failure
Cartels
Business Dictionary definition- Group of firms or nations who attempt to control price or supply of a commodity (such as oil) through mutual restraint on production. Although such collusion among sovereign countries (such as in OPEC) is grudgingly accepted, it is illegal among corporations.
Investopedia definition- An organization created from a formal agreement between a group of producers of a good or service, to regulate supply in an effort to regulate or manipulate prices. A cartel is a collection of businesses or countries that act together as a single producer and agree to influence prices for certain goods and services by controlling production and marketing. A cartel has less command over an industry than a monopoly - a situation where a single group or company owns all or nearly all of a given product or service's market. In the United States, cartels are illegal; however, the Organization of Petroleum Exporting Countries (OPEC) - the world's largest cartel - is protected by U.S. foreign trade laws.
Examples
- Amid controversy in the mid-2000s, the U.S. Congress attempted to penalize OPEC as an illegal cartel but the effort was blocked over concerns of retaliation and potential negative effects on U.S. businesses. Despite the fact that OPEC is considered by many to be a cartel, members of OPEC have maintained it is not a cartel at all, but an international organization with a legal, permanent and necessary mission.
- Major league baseball would be a good example of a cartel. As would the NCAA. Major league baseball has an official sanction for its cartel from Congress in the form of an anti-trust exemption
- Case studys on Cartel
- Australian airline Qantas is reported as having pleaded guilty in the
- Various case studys of Cartels
- cartel between freight airlines. There are reported to be over 20 airlines involved including Air France, and the Dutch carriers KLM and Martinair. British Airways was also involved and has pleaded guilty to being part of a cartel from 2000 to around 2006. The cartels are believed to have been operating across a number of countries including the United States (US), Canada, South Korea and Australia. more on airplanes Cartel
- Companies are all involve in making memory chips for computers. The total fines levied on the companies involved amount to €331 million. computer chips Cartel
- construction industry. The allegations focus on firms operating in general building work, house construction and commercial and industrial construction both in the public and the private sector. The allegations centre on the way in which firms bid for and acquire contracts. Construction Cartel
Collusion
Business Dictionary definition- Improper secret agreement between two or more entities, to defraud or deprive others of their property or rightful share, or to otherwise indulge in a forbidden, illegal, or illegitimate activity.
Investopedia definition- A non-competitive agreement between rivals that attempts to disrupt the market's equilibrium. By collaborating with each other, rival firms look to alter the price of a good to their advantage. The parties may collectively choose to restrict the supply of a good, and/or agree to increase its price in order to maximize profits. Groups may also collude by sharing private information, allowing them to benefit from insider knowledge.
Explanation
Collusion involves people cooperating or working together when they should be competing. In the stock market, collusion can take many forms. Traders participating in accommodation trading, where goods are exchanged for non-competitive prices, are involved in collusion.
Colluding traders might share private information regarding upcoming takeovers, allowing them to benefit from insider trading. Price rigging also involves the collusion of sellers, who inflate the price of an asset to realize higher profits.
Colluding traders might share private information regarding upcoming takeovers, allowing them to benefit from insider trading. Price rigging also involves the collusion of sellers, who inflate the price of an asset to realize higher profits.
Examples
- The sharing of potential contract terms by NBA free agents in an effort to help a targeted franchise circumvent the salary cap
- Price fixing within food manufacturers providing cafeteria food to schools and the military in 1993.
- Market division and output determination of livestock feed additive, called lysine, by companies in the US, Japan and South Korea in 1996, Archer Daniels Midland being the most notable of these.
- Chip dumping in poker or any other high stake card game.
- http://agbeat.com/economic-news/the-greatest-example-of-collusion-in-history/
Competition Commission
The Competition Commission (CC) is an independent public body which helps to ensure healthy competition between companies in the UK for the ultimate benefit of consumers and the economy. It conducts in-depth investigations into mergers and markets and also has certain functions with regard to the major regulated industries.
What they do
- Market investigations
- Merger Inquiries
- Regulatory references and appeals
Eu Commission
The European Commission represents the interests of the EU as a whole. It proposes new legislation to the European Parliament and the Council of the European Union, and it ensures that EU law is correctly applied by member countries. The term 'Commission' refers
to both the 27 Commissioners and the wider institution itself
What they do
to both the 27 Commissioners and the wider institution itself
What they do
The Commission has the right of initiative to propose laws for adoption by the European Parliament and the Council of the EU (national ministers). In most cases, the Commission makes proposals to meet its obligations under the EU treaties, or because another EU institution, country or stakeholder has asked it to act. From April 2012, EU citizens may also call on the Commission to propose laws (European Citizens’ Initiative).
Before making proposals, the Commission consults widely so that stakeholders' views can be taken into account. In general, an assessment of the potential economic, social and environmental impact of a given piece of legislation act is published along with the proposal itself.
The principles of subsidiarity and proportionality mean that the EU may legislate only where action is more effective at EU level than at national, regional or local level, and then no more than necessary to attain the agreed objectives.
Once EU legislation has been adopted, the Commission ensures that it is correctly applied by the EU member countries.
Official Webbie
Official Webbie
Fairtrade
Aims
The Foundation’s mission is to work with businesses, community groups and individuals to improve the trading position of producer organisations in the South and to deliver sustainable livelihoods for farmers, workers and their communities by –
- being a passionate and ambitious development organisation committed to tackling poverty and injustice through trade
- using certification and product labelling, through the FAIRTRADE Mark, as a tool for our development goals
- bringing together producers and consumers in a citizens’ movement for change
- being recognised as the UK’s leading authority on Fairtrade
What they do
- providing an independent certification of the trade chain, licensing use of the FAIRTRADE Mark as a consumer guarantee on products
- Facilitating the market to grow demand for Fairtrade and enable producers to sell to traders and retailers
- Working with our partners to support producer organisations and their networks
- Raising public awareness of the need for Fairtrade and the importance of the FAIRTRADE Mark
How this affected different economies and businesses in both a positive and negative way
- positive
- positive 2
- positive 3
- producers can make a better living.
- help the poor.
- make the world a better place.
Negative
- consumers might pay a bit more.
- not all consumers can afford expensive produces.
- Negative
- negative 2
- negative 3
- negative 4
- negative 5
Positive Externality
Business Dictionary definition- Positive effect or benefit realized by a third party resulting from a transaction in which they had no direct involvement. In financial transactions, a positive externality provides benefits to individuals in the form of a "spillover". For example, higher wages and improved health benefits for workers is a positive externality of a company merger. Also called external benefit.
- Immunizations, such as a flu shot, etc., provide a positive externality to third parties in that it helps prevent the spread of illness in the general public.
- A company provides funds for it's employees to obtain specialized training or degrees. By doing so, the company can be benefited by increased production which also benefits the customer. At the same time, this can benefit society as a whole by increasing the level of education, quality of life, etc.
- Significant home improvements will not only raise a person's property value, but it will also increase the values of the home nearby.
- Improving driving habits will decrease the risk of accident for everyone on the road as well as eventually reduce insurance premiums of the driver.
Negative externalities
Business Dictionary definition- Occurs when a product or decision costs the society more than its private cost. It is generally viewed as a failure of the market because the level of consumption or production of the product is higher than what the society requires. Car pollution is an example of negative externality; as a driver of a car, you don't account for the costs of the air pollution created by the car but the society is paying for the costs of air pollution.
Examples
- Pollution from a factory can cause health problems and erode the quality of life and property values in a community.
- A power plant that burns coal to generate electricity emits pollution. The more electricity that is demanded by customers, the more coal that is burned in order to produce it. Increasing the amount of coal burned to generate electricity thus increases the level of pollutants emitted into the atmosphere that can lead to such things as global warning, acid rain and smog.
- Second-hand cigarette smoke causes health problems in people other than smoker.
- A loud party next door can cause those not involved in the festivities to lose sleep.
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