UNIVARSITY.ORG | Market Failures, Taxes, and Subsidies: Crash Course Economics #21
Interesting information about Universities
information about Universities, University, complete university guide, university league tables, which university should i go to, which university course is right for me, which university gives the most scholarship, iipm affiliated to which university, which university is best for mba distance education, which university is the best in the world,
44438
single,single-post,postid-44438,single-format-standard,ajax_leftright,page_not_loaded,,qode-title-hidden,qode-theme-ver-7.6.2,wpb-js-composer js-comp-ver-4.6.2,vc_responsive

15 Nov Market Failures, Taxes, and Subsidies: Crash Course Economics #21



This week on Crash Course Econ, Jacob and Adriene are talking about failure. Specifically, we’re talking about market failures. When markets don’t provide a good or service efficiently, that’s a market failure. When markets fail, often governments step in to provide those services. Stuff like public education or military protection are good examples of market failures. So, what are some of the ways governments address, market failures? Well, it’s funny you should ask, as we also talk about that in this episode. We’ll get into taxes and subsidies and externalities and a bunch of other important stuff this week on Crash Course Econ.

Crash Course is on Patreon! You can support us directly by signing up at

Thanks to the following Patrons for their generous monthly contributions that help keep Crash Course free for everyone forever:

Mark, Eric Kitchen, Jessica Wode, Jeffrey Thompson, Steve Marshall, Moritz Schmidt, Robert Kunz, Tim Curwick, Jason A Saslow, SR Foxley, Elliot Beter, Jacob Ash, Christian, Jan Schmid, Jirat, Christy Huddleston, Daniel Baulig, Chris Peters, Anna-Ester Volozh, Ian Dundore, Caleb Weeks

Want to find Crash Course elsewhere on the internet?
Facebook –
Twitter –
Tumblr –
Support Crash Course on Patreon:

CC Kids:

VISIT ONE OF OUR SPONSORS. WITHOUT THEM, OUR WEBSITE WOULD NOT BE POSSIBLE.
MOST RECENT COMMENTS
37 Comments
  • Lorenzo Graziosi
    Posted at 01:10h, 15 November

    I always come to think that he's speaking at x5 speed

  • Alon Umetaliev
    Posted at 01:10h, 15 November

    Jesus Christ Jacob are you on cocaine? Slow down a little

  • Tahrima Mohsin
    Posted at 01:10h, 15 November

    Become “More interesting to talk to at parties”, yup, that’s exactly why I’m obtaining my degrees

  • Matthew Lyons
    Posted at 01:10h, 15 November

    Market Failures, Taxes, and Subsidies: Crash Course Economics #21

    Hope you guys like my notes I will likely upload all episode notes when I'm done on the last episode

    1) Free riders: people who benefit without paying.

    Public goods are provided by the government due to the free-rider problem: everyone wants to be the one who takes advantage of something without paying due to the non-exclusion criteria of public goods.

    Market failure: when markets fail to provide enough public goods.

    2) Public good: anything having the characteristics of:

    non-exclusion, i.e. the idea that you cannot exclude people that do not pay 

    non-rivalry, i.e. one person’s consumption of the good does not ruin it for others 

    ex: Public parks

    If a good or service meets these two criteria, it is unlikely that private firms will produce it, no matter how essential it is – that is why governments are involved.

    The Tragedy of the Commons: the idea that common goods that everyone has access to are often misused and exploited.

    ex: If a few environmentally conscious fishermen decide to give the fish time to spawn, then some other fisherman will harvest them instead. If you can’t prevent other people from exploiting the resource, then you have an incentive to exploit it yourself and take as much as you can, as quickly as you can —> Finite resources thus get pillaged. This is a problem found in Environmental economics.

    3) Externalities: situations when some external costs or benefits accrue to other people or society as a whole. When other people are made worse off that's called a negative externality. When other people are made better off that's called a positive externality.

    ex: Let’s look at a TV factory that pollutes a river with toxic chemicals. This is a negative externality. The factory has internal costs: it has to pay its workers, buy raw materials, pay for energy; and uses those costs to determine how many TVs to produce. But there are also external costs associated with polluting the waterways, like dead fish, contaminated drinking water, and people getting sick. Those external costs are paid by people downstream, and they are likely to be ignored by the factory owner. 

    —> The free market assumes that all the costs associated with producing TVs are accounted for within the price of those TVs, but, in this case, the market is wrong. The result is a market failure because the factory is producing too many TVs.

    Now in both cases, negative and positive externalities, economists often look to the government to step in and solve the problem. 

    ex: The government could tax the TV factory or subsidize education. 

    —> In fact, externalities are the justification for almost everything the government does. When politicians, tax cigarettes, fund education, subsidize fuel-efficient cars or regulate financial markets, it's because they are convinced that free-markets alone are not adjusting for externalities.

    When the government tries to fix externalities they can use:

    Regulatory policies: rules established by government decree.

    ex: Let’s go back to the TV factory example. To help solve the pollution externality, the government could ban the use of certain types of chemicals or set a production quota to limit the production of TVs or regulate what can be dumped in the river. In the US, the Environmental Protection Agency (EPA) has pushed for laws to control pollution, and these regulations have worked.

    Market-based policies: policies designed to manipulate markets, prices, and incentives to correct

    for market failures.

    ex: – The best examples are taxes and subsidies. A tax on the production of TVs or on the chemicals the factory is using will decrease production and limit pollution.

          – One oft-discussed market-based policy is emissions trading or “cap and trade.”

    The government issues pollution permits and if your factory doesn’t hold one of those permits, it can’t pollute. But companies can buy or sell those permits. This sets up incentives to go green: if you can produce without pollution, you can make money by selling your permits. But if you operate a dirty plant, you have to pay for those extra permits. Individual countries might work to reduce carbon dioxide emissions, but they can’t prevent other countries from polluting. It’s the Tragedy of the Commons.

    In real life, though, governments often use both policies. 

    ex: In the US, the government taxes cigarette producers and regulates where people can smoke.

    —> The question isn’t “which is better: free markets or government?” The question is “how can they work together to make our lives better?”

  • Erik Gruber
    Posted at 01:10h, 15 November

    Did you ever hear the Tragedy of the commons? I thought not. It's not a story the industrialists would tell you…

  • yangchen lama
    Posted at 01:10h, 15 November

    This guy talks too fast
    … like if u understand the girl better

  • Jakub Wojciechowski
    Posted at 01:10h, 15 November

    1.46 Well, that is evil. Just because something is common, doesn't make it moral

  • Reilly Long
    Posted at 01:10h, 15 November

    game of thrones references didn't age well

  • Nayab waheed
    Posted at 01:10h, 15 November

    Covid 19 is also an example of market failure 😂😂

  • charles kershaw
    Posted at 01:10h, 15 November

    the two points six point idea is a stupid example. selecting six points is an act in favor of the group because it makes it more likely no one will get the points, which means they are all put back on an even footing and no one gets a silver spoon.

  • Gav
    Posted at 01:10h, 15 November

    this series single handedly predicted the coronavirus pandemic and the crappy GoT ending.

  • Lovavila
    Posted at 01:10h, 15 November

    Tragedy of the commons is exactly what is happening with resources nowadays via Covid-19. Say 50% of the community gets paranoid and overstocks and buys out their grocery stores. Well, the other 50% that knows we're fine and aren't having shortages now also have buy and stock up on those resources or there will be none left for them, thus actually resulting in a shortage due to the unexpected rise in consumers and lack of product availability.

  • Calvin McClory
    Posted at 01:10h, 15 November

    The argument pre assumes that people know what is best for society, rather than view the free market as a tool for discovering utility. The contradictions the conclusion in the price signaling video.

    I'm not arguing against Government programs, I'm arguing against the mindset this video ends on. That the free market generates efficiency, but that government generates positive outcomes.

    Governments are inherently inefficient. Government welfare programs use 70% of funding on employees, while not for profits use 25%, and they also lack a profit motive. There's something fundamentally inefficient about government.

    Taxes are also a negative externality. Ignoring this creates a overly rosy picture of Government, which when taken to the extreme views the free market only as a necessary evil.

    Another extreme view is the assumption that free mark externalities are always preferable to government externalities. This conclusion leads you to the conclusion we should have no Government at all.

    Public choice economics is a sub discipline used to explain the behavior of Government employees and study political entrepreneurship. It wasn't mentioned once.

    The conclusion I would teach others, isn't that they need to be a libertarian like me, and believe that government is inherently cohesive. But that they need to approach economics with a dispassionate curiosity, and when deciding on public policy weigh the positive externalities and negative externalities of all considered proposals, and remember that new data can alter the cost benefit analysis. Many people see one data set one time and conclude that its immutable or definitive.

    For example, new data is showing us that a sufficiently high minimum wage dose create externalities. Like youth unemployment, less hours, unpaid learning opportunities, and in extream case increases in the cost of goods and services.

    "There's a smoke stack on the back of every government program." -MF.

  • Coffee Sugar.
    Posted at 01:10h, 15 November

    Oh no, I wanted to be a more interesting person to talk to at a party but I accidentally got a high paid job

  • nimish shah
    Posted at 01:10h, 15 November

    One problem with regulation and tax is the proliferation of illegal market or what we call black market

  • Swasti Airon
    Posted at 01:10h, 15 November

    Mixed economy is the solution

  • It's all fun and games
    Posted at 01:10h, 15 November

    Boooooooooooooooooooooooooooooooooooooooooring

  • Jefri Manuel Pierre
    Posted at 01:10h, 15 November

    So the shitty ending of Game of thrones was our fault

  • Josemar Vicente
    Posted at 01:10h, 15 November

    On this series only she predicted a pandemic and GOT unsatisfying ending

  • Miguel Galarza
    Posted at 01:10h, 15 November

    Sources?

  • Antonio Rodriguez
    Posted at 01:10h, 15 November

    Whats funny to me is that the case of education being paid out of pocket as a what if scenario is the reality in my country, Chile, where everything was privatized, following Friedmans ideas, during the dictatorship

  • Lee Boon Kong
    Posted at 01:10h, 15 November

    F.A Hayek would've hated this video just by looking at the title.

  • kpopalit fonzelitaclide
    Posted at 01:10h, 15 November

    do i get paid for cleaning air

  • Shanequa White
    Posted at 01:10h, 15 November

    I choose 6, because no one should get extra credits.

  • Årdubayu
    Posted at 01:10h, 15 November

    watching this during the 2020 bear market makes me kinda worrisome lol

  • Duy Dang
    Posted at 01:10h, 15 November

    Those are not "small" catches.

  • H. Ar.
    Posted at 01:10h, 15 November

    VERY insightful video with lots of great examples. Thank you Jacob and Adriene!!

  • Darsh
    Posted at 01:10h, 15 November

    Focusing on how the two sides can work together, rather than which of them is better.. clever quote that sums up a lot of political problems nowadays. Too much all one way or the other, which stronger side-effects, rather than the superior middle option, with fewer side-effects.

  • ZygiNY
    Posted at 01:10h, 15 November

    Like say the public park bathroom in NYC, that Stossel did a video about, that cost $2 million. That's quite a correction of free market by politicians. What a waste of taxpayer money disaster.

  • Poornima
    Posted at 01:10h, 15 November

    Great

  • TheNightEyes
    Posted at 01:10h, 15 November

    Game of Thrones writers liked this video: it’s all the fault of those who downloaded the show

  • Rúben Campos
    Posted at 01:10h, 15 November

    0:36
    Adriene: in 2015
    Captions : iN 2105

    really

  • Jill Fratis
    Posted at 01:10h, 15 November

    Ugh the government is always telling us what to do, "don't drive too fast, don't build houses on Yellowstone, and DON'T KILL ANYBODY" LOL okay, I'm sure the government isn't the only ones that aren't telling us not to kill anybody

  • Godsfavour Nnaji
    Posted at 01:10h, 15 November

    Really wowed

  • gNightrow
    Posted at 01:10h, 15 November

    This isn't the issue of free market, this is the fault of people being reliant on a luck based system with inefficient communication rather than a merit based system with effective communication. Betting on stocks is a form of gambling not a form of voluntary exchange of goods and services.

  • Ron Pearson
    Posted at 01:10h, 15 November

    IF there is a demand for nuclear weapons why shouldn't they be for sale? They provide leverage.

  • Saif Abu Shakra
    Posted at 01:10h, 15 November

    AC/DC ECON GANG

YOU CAN NOW ADVERTISE WITH US. PLEASE CONTACT US FOR FURTHER INFORMATION IN REGARDS TO PRICING ETC.