Microeconomics: When Markets Fail

About this course: Perfect markets achieve efficiency: maximizing total surplus generated. But real markets are imperfect. In this course we will explore a set of market imperfections to understand why they fail and to explore possible remedies including as antitrust policy, regulation, government intervention. Examples are taken from everyday life, from goods and services that we all purchase and use. We will apply the theory to current events and policy debates through weekly exercises. These will empower you to be an educated, critical thinker who can understand, analyze and evaluate market outcomes.

Created by:  University of Pennsylvania

• Taught by:  Rebecca Stein, Senior Lecturer

  Economics

Language English, Subtitles: Mongolian How To Pass Pass all graded assignments to complete the course. User Ratings 4.8 stars Average User Rating 4.8See what learners said Coursework

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University of Pennsylvania The University of Pennsylvania (commonly referred to as Penn) is a private university, located in Philadelphia, Pennsylvania, United States. A member of the Ivy League, Penn is the fourth-oldest institution of higher education in the United States, and considers itself to be the first university in the United States with both undergraduate and graduate studies.

Syllabus


WEEK 1


Costs and Profits + Perfect Competition



In the first part of the course we learnt that if we allow market forces to work we reach an efficient outcome: the maximum benefit that can be generated by a market. The second part of the course explores cases where the markets fail to accomplish our goals. This week sets up the benchmark case of the perfectly competitive market: a model we will modify in the next few weeks. We define Perfect Competition, learn to model it graphically and discuss some key results in terms of long run profits and implications for efficiency.


20 videos expand

1. Video: 1.1.0: When Markets Fail: Introduction
2. Video: 1.1.1: Defining Profits
3. Video: 1.1.2: Defining Fixed Costs and Variable Costs
4. Video: 1.1.3: Marginal Productivity
5. Video: 1.1.4: Marginal Productivity: Definition
6. Video: 1.1.5: Marginal Cost
7. Video: 1.1.6: Average Cost
8. Video: 1.1.7: Graph of Marginal and Average Cost Curves
9. Video: 1.2.1: Perfect Competition: Definition
10. Video: 1.2.2: Profit Maximization Perfect Competition
11. Video: 1.2.3: Profit Maximization: MR=MC
12. Video: 1.2.4: Profit Maximizations vs. Making Profits
13. Video: 1.2.5: Profit Maximization: The Case of Losses
14. Video: 1.2.6: Perfect Competition: The Firm's Supply Curve REPLACE
15. Video: 1.2.7: Definition of Short Run vs. Long Run
16. Video: 1.3.1: Perfect Competition: Firm Entry When Profits are Positive
17. Video: 1.3.2: Perfect Competition: Firm Entry When Profits are Negative
18. Video: 1.3.3: Perfect Competition: An Efficient Outcome
19. Video: 1.3.4: Perfect Competition: In The Long Run
20. Video: 1.3.5: Perfect Competition: An Efficient Outcome Pt 2
21. Discussion Prompt: Firm and Profit Maximization

Graded: 1.1: Costs and Profits
Graded: 1.2: Perfect Competition: Definition and Output
Graded: 1.3: Perfect Competition: Implications for Efficiency

WEEK 2


Monopoly
A monopoly is a case where there is only one firm in the market. We will define and model this case and explain why market power is good for the firm, bad for consumers. We will also show that society as a whole suffers from the lack of competition.


13 videos expand

1. Video: 2.1.1 Monopoly: Definition
2. Video: 2.1.2: The Monopoly as a Price Setter
3. Video: 2.1.3 Marginal Revenue vs Price: Numerical Example
4. Video: 2.1.4 Marginal Revenue vs Price: Graphical Example
5. Video: 2.1.5 Marginal Revenue vs Price: Example Using Calculus
6. Video: 2.1.6 Profit Maximization in a Monopoly
7. Video: 2.1.7 Profit Maximization in a Monopoly: Numerical Example
8. Video: 2.2.1 Monopoly vs Perfect Competition
9. Video: 2.2.2 Efficiency loss under a Monopoly
10. Video: 2.2.3 Monopoly vs Perfect Competition: Numerical Example
11. Video: 2.2.4 Monopoly vs Perfect Competition: Example of Dead Weight Loss
12. Video: 2.2.5 Monopoly vs Perfect Competition: Summary
13. Video: 2.2.6 Why do we allow monoplies?
14. Discussion Prompt: Monopoly in Real Life

Graded: 2.1: Monopoly definition
Graded: 2.2: Monopoly vs. Perfect Competition Numerical example

WEEK 3


Monopoly Continued



Monopolies come in various types: one price monopoly, natural monopoly, price discrimination and monopolistic competition. This week we will expand the basic monopoly model to cover these cases and then explore market outcomes in each case. We will also discuss how government may intervene in such cases to benefit society as a whole and increase the surplus generated by the market.


14 videos expand

1. Video: 3.1.1 Natural Monopoly: Definition
2. Video: 3.1.2 Government Regulation and Antitrust Law
3. Video: 3.1.3 Natural Monopoly: Implications for the Average Total Cost
4. Video: 3.1.4 Natural Monopoly: Graphical Presentation
5. Video: 3.1.5 Natural Monopoly: Profit Maximizing Outcome
6. Video: 3.1.6 Natural Monopoly: Regulation though Marginal Cost Pricing
7. Video: 3.1.7 Natural Monopoly: Regulation though Average Cost Pricing
8. Video: 3.2.1 Price Discrimination: Definition
9. Video: 3.2.2 Price Discrimination: Graphical Example
10. Video: 3.3.1 Monopolistic Competition: Definiton
11. Video: 3.3.2 Monopolistic Competition: Core Results
12. Video: 3.3.3 Monopolistic Competition: Graphical Presentation in the Short Run
13. Video: 3.3.4 Monopolistic Competition: Graphical Presentation in the Long Run
14. Video: 3.3.5 Monopolistic Competition: Mark up and Excess Capacity
15. Discussion Prompt: Different Market Structures and Government Intervention

Graded: 3.1: Natural Monopoly
Graded: 3.2: Price Discriminating Monopoly
Graded: 3.3 Monopolistic Competition

WEEK 4


Externalities + Public Goods
Two classic cases of market failure will be defined and explored: externalities and public goods. We will define each case, demonstrate why the market fails to provide the efficient outcome and suggest interventions through either marked design or regulation.


20 videos expand

1. Video: 4.1.1: Externalities: Definition
2. Video: 4.1.2: Externalities: Allocative Efficiency: Refresher
3. Video: 4.1.3: Negative Externalities: Implications for Efficiency
4. Video: 4.1.4: Positive Externalities: Implications for Efficiency
5. Video: 4.1.5: The Coase Theorem
6. Video: 4.1.6: Interalizing a Negative Externality via a Per Unit Tax
7. Video: 4.1.7: Interalizing a Positive Externality via a Per Unit Subsidy
8. Video: 4.2.1: Externalities: A Numerical Example
9. Video: 4.2.2: Interalizing a Negative Externality via Tax: A Numerical Example
10. Video: 4.2.3 Government Intervention in the Case of Externalities
11. Video: 4.2.4 Externality: Conclusion
12. Video: 4.3.1 Pure Public Goods: Nonexcludable and Nonrival
13. Video: 4.3.2: Examples of Different Types of Goods
14. Video: 4.3.3: Implications of Nonexcludability
15. Video: 4.3.4: Free Riding
16. Video: 4.3.5: Implications of Nonrivalness
17. Video: 4.4.1: The Role of the Government in Providing Public Goods
18. Video: 4.4.2: Provision of Public Good by the Government
19. Video: 4.4.3: Free Riding as a Prisoners' Dilemma
20. Video: 4.4.4: Public Goods Conclusion
21. Discussion Prompt: Externality and Government Intervention

Graded: 4.1: Externalities
Graded: 4.2: Solutions to Externalities
Graded: 4.3: Public Goods
Graded: 4.4: Solutions to Public Goods

WEEK 5


Asymetric Information and Inequlity



Up to this point we assumed that there is full information in the market. We are now ready to relax this assumption as we introduce the concepts of moral hazard and adverse selection. We learn that asymmetric information may lead to market failure and we discuss some remedies. The last segment in the course is a reminder that besides efficiency, equity is also a criteria we all care about. A short introduction will explore how economist measure poverty and inequality.


10 videos expand

1. Video: 5.1.1 Adverse Selection
2. Video: 5.1.2 Adverse Selection: Consequences and Solutions
3. Video: 5.1.3 Adverse Selection: A Numerical Example
4. Video: 5.1.4 Adverse Selection: A Numerical Example with Private Information
5. Video: 5.1.5 Adverse Selection: Possible Solutions
6. Video: 5.1.6 Moral Hazard
7. Video: 5.1.7 Moral Hazard: Consequences and Solutions
8. Video: 5.2.1 Inequality
9. Video: 5.2.2 Poverty
10. Video: 5.2.3 Income Redistribution
11. Discussion Prompt: Measuring Poverty

Graded: 5.1: Asymmetric Information
Graded: 5.2: Poverty and Inequality
Graded: Final Exam