ECON101: Principles of Microeconomics

We wrap up this section and chapter with a video that explains how policymakers deal with monopoly power in a particular market. Make sure you can understand the graphs.

Note that there is no consensus on whether government regulation and taxation are necessary to rectify inefficient market outcomes. Some economists argue that such intervention is essential, as market failures often result from private decision-making. They propose taxing negative externalities to internalize costs and subsidizing positive externalities for the common good. Conversely, some argue that market mechanisms can naturally resolve these externalities (Coase theorem). They believe that mutually beneficial contracts between parties, such as agreements between landlords and polluters, can lead to efficient outcomes, thus questioning the need for extensive government involvement.