NJC 2025 SH1 H1 H2 Econ Ch3 Seminar Notes (Final)

CHAPTER 3 Microeconomic Objectives and Policies OVERVIEW OF CHAPTER .......................................................................................................................................................... 1 1.INTRODUCTION ....................................................................................................................................................................... 2 1.1 FEATURES OF THE MARKET SYSTEM ...................................................................................................................... 3 1.2 ROLES OF THE GOVERNMENT .................................................................................................................................... 5 2. MARKET FAILURE .................................................................................................................................................................. 7 3. PUBLIC GOODS ........................................................................................................................................................................ 8 3.1 CHARACTERISTICS OF PUBLIC GOODS .................................................................................................................... 9 3.2 REASONS FOR MARKET FAILURE IN THE PROVISION OF PUBLIC GOODS ................................................ 10 3.2.1 CHARACTERISTIC OF NON-EXCLUDABILITY .................................................................................................. 10 3.2.2 CHARACTERISTIC OF NON-RIVARLY ................................................................................................................. 10 3.3 MICROECONOMIC POLICIES: PUBLIC GOODS AND COST BENEFIT ANALYSIS ......................................... 13 4. PRESENCE OF EXTERNALITIES ........................................................................................................................................ 14 4.1 NEGATIVE EXTERNALITIES ....................................................................................................................................... 19 4.2 MICROECONOMIC POLICIES: NEGATIVE EXTERNALITIES .............................................................................. 21 4.3 POSITIVE EXTERNALITIES ......................................................................................................................................... 30 4.4 MICROECONOMIC POLICIES: POSITIVE EXTERNALITIES ................................................................................ 32 5. INFORMATION FAILURE .................................................................................................................................................. 37 5.1 INFORMATION FAILURE ON THE COSTS AND BENEFITS ............................................................................... 38 5.1.1 IMPERFECT INFORMATION ABOUT THE COSTS .........................................................................