Chapter Preview: In Chapter 6, we discovered perfectly competitive markets do a good job of allocating our limited resources toward the production of the goods and services we most desire. In some circumstances, however, even perfectly competitive markets fail in their task. Issues including asymmetrical information, moral hazard, and adverse selection, and the principal-agent problem were discussed as causes of inefficient resource allocation for freely operating markets. We briefly looked at externalities and public goods. In Chapter 7, we found that natural monopoly may be a model for arranging production that is preferable to perfect competition. In this chapter, we resume our examination of the circumstances ...
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