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Examining a Market Failure

Try as we may, whether economies have markets that are laissez faire, loosely or tightly regulated, or whether the government is the major decision maker, markets do fail. That is, they fail to register the appropriate/proper/efficient prices and quantities in the marketplace. Costs and/or benefits may, in some markets, spill over onto people outside of the market transactions – thus, the externality. Some are positive (my neighbor who lives to the left of me, has a flower garden that improves my quality of life and he’s done all the work) and some are negative (my neighbor to the right of me lowers the quality of my life with the two broken down cars he keeps on his front lawn). Noting what has been mentioned above, take a positive externality or a negative externality and explore it in detail. Examine the role of social costs and benefits, private costs and benefits, what role, if any, can the government or even the private sector play in correcting the externality, is there a free rider problem associated with it and can it be corrected? As we attempt to correct for the externality what additional tradeoffs may the private and/or pubic sectors make? You should use graphs to help reinforce and bolster your argument.  The paper must use at least three disciplinary sources but not necessarily peer-reviewed sources. Students may use their textbook as a source, but it will NOT count as one of the three required sources. Short paper # 2 must include graphs, a works cited page, have proper APA format throughout the paper, and must be the equivalent of 4 pages of APA properly formatted writing. The paper will automatically be evaluated for originality by Blackboard SafeAssign. Again, you might find it helpful to review the Prof Battista’s handout “Writing in Economics using APA and Visual Aids: Some Helpful Hints.” Students may find the textbook helpful in applying concepts from their knowledge of chapter 12 (Positive Externalities, Cost/Benefit Analysis of Environmental Regulation) and Chapter 13 (Negative Externalities, Public Goods, Free Rider Problem)