Microeconomics: When Markets Fail

Instructor: Rebecca Stein

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5 modules

Gain insight into a topic and learn the fundamentals.

660 reviews

1 week to complete

at 10 hours a week

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Learn at your own pace

95%

Most learners liked this course

5 modules

Gain insight into a topic and learn the fundamentals.

660 reviews

1 week to complete

at 10 hours a week

Flexible schedule

Learn at your own pace

95%

Most learners liked this course

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Assessments

15 assignments

Taught in English

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There are 5 modules in this course

Perfect markets achieve efficiency: maximizing total surplus generated. But real markets are imperfect. In this course we will explore a set of market imperfections to understand why they fail and to explore possible remedies including as antitrust policy, regulation, government intervention. Examples are taken from everyday life, from goods and services that we all purchase and use. We will apply the theory to current events and policy debates through weekly exercises. These will empower you to be an educated, critical thinker who can understand, analyze and evaluate market outcomes.

In the first part of the course we learnt that if we allow market forces to work we reach an efficient outcome: the maximum benefit that can be generated by a market. The second part of the course explores cases where the markets fail to accomplish our goals. This week sets up the benchmark case of the perfectly competitive market: a model we will modify in the next few weeks. We define Perfect Competition, learn to model it graphically and discuss some key results in terms of long run profits and implications for efficiency.

What's included

20 videos3 assignments1 discussion prompt

20 videos Total 45 minutes

1.1.0: When Markets Fail: Introduction 2 minutes
1.1.1: Defining Profits 1 minute
1.1.2: Defining Fixed Costs and Variable Costs 2 minutes
1.1.3: Marginal Productivity 3 minutes
1.1.4: Marginal Productivity: Definition 1 minute
1.1.5: Marginal Cost 2 minutes
1.1.6: Average Cost 2 minutes
1.1.7: Graph of Marginal and Average Cost Curves 2 minutes
1.2.1: Perfect Competition: Definition 5 minutes
1.2.2: Profit Maximization Perfect Competition 2 minutes
1.2.3: Profit Maximization: MR=MC 3 minutes
1.2.4: Profit Maximizations vs. Making Profits 3 minutes
1.2.5: Profit Maximization: The Case of Losses 2 minutes
1.2.6: Perfect Competition: The Firm's Supply Curve REPLACE 1 minute
1.2.7: Definition of Short Run vs. Long Run 2 minutes
1.3.1: Perfect Competition: Firm Entry When Profits are Positive 3 minutes
1.3.2: Perfect Competition: Firm Entry When Profits are Negative 2 minutes
1.3.3: Perfect Competition: An Efficient Outcome 3 minutes
1.3.4: Perfect Competition: In The Long Run 2 minutes
1.3.5: Perfect Competition: An Efficient Outcome Pt 2 1 minute

3 assignments Total 90 minutes

1.1: Costs and Profits 30 minutes
1.2: Perfect Competition: Definition and Output 30 minutes
1.3: Perfect Competition: Implications for Efficiency 30 minutes

1 discussion prompt Total 10 minutes

Firm and Profit Maximization 10 minutes

A monopoly is a case where there is only one firm in the market. We will define and model this case and explain why market power is good for the firm, bad for consumers. We will also show that society as a whole suffers from the lack of competition.

What's included

13 videos2 assignments1 discussion prompt

13 videos Total 39 minutes

2.1.1 Monopoly: Definition 2 minutes
2.1.2: The Monopoly as a Price Setter 2 minutes
2.1.3 Marginal Revenue vs Price: Numerical Example 3 minutes
2.1.4 Marginal Revenue vs Price: Graphical Example 3 minutes
2.1.5 Marginal Revenue vs Price: Example Using Calculus 1 minute
2.1.6 Profit Maximization in a Monopoly 2 minutes
2.1.7 Profit Maximization in a Monopoly: Numerical Example 4 minutes
2.2.1 Monopoly vs Perfect Competition 6 minutes
2.2.2 Efficiency loss under a Monopoly 3 minutes
2.2.3 Monopoly vs Perfect Competition: Numerical Example 6 minutes
2.2.4 Monopoly vs Perfect Competition: Example of Dead Weight Loss 3 minutes
2.2.5 Monopoly vs Perfect Competition: Summary 2 minutes
2.2.6 Why do we allow monoplies? 3 minutes

2 assignments Total 38 minutes

2.1: Monopoly definition 8 minutes
2.2: Monopoly vs. Perfect Competition Numerical example 30 minutes

1 discussion prompt Total 10 minutes

Monopoly in Real Life 10 minutes

Monopolies come in various types: one price monopoly, natural monopoly, price discrimination and monopolistic competition. This week we will expand the basic monopoly model to cover these cases and then explore market outcomes in each case. We will also discuss how government may intervene in such cases to benefit society as a whole and increase the surplus generated by the market.

What's included

14 videos3 assignments1 discussion prompt

14 videos Total 39 minutes

3.1.1 Natural Monopoly: Definition 1 minute
3.1.2 Government Regulation and Antitrust Law 2 minutes
3.1.3 Natural Monopoly: Implications for the Average Total Cost 3 minutes
3.1.4 Natural Monopoly: Graphical Presentation 1 minute
3.1.5 Natural Monopoly: Profit Maximizing Outcome 4 minutes
3.1.6 Natural Monopoly: Regulation though Marginal Cost Pricing 4 minutes
3.1.7 Natural Monopoly: Regulation though Average Cost Pricing 4 minutes
3.2.1 Price Discrimination: Definition 4 minutes
3.2.2 Price Discrimination: Graphical Example 4 minutes
3.3.1 Monopolistic Competition: Definiton 2 minutes
3.3.2 Monopolistic Competition: Core Results 2 minutes
3.3.3 Monopolistic Competition: Graphical Presentation in the Short Run 3 minutes
3.3.4 Monopolistic Competition: Graphical Presentation in the Long Run 2 minutes
3.3.5 Monopolistic Competition: Mark up and Excess Capacity 2 minutes

3 assignments Total 90 minutes

3.1: Natural Monopoly 30 minutes
3.2: Price Discriminating Monopoly 30 minutes
3.3 Monopolistic Competition 30 minutes

1 discussion prompt Total 10 minutes

Different Market Structures and Government Intervention 10 minutes

Two classic cases of market failure will be defined and explored: externalities and public goods. We will define each case, demonstrate why the market fails to provide the efficient outcome and suggest interventions through either marked design or regulation.

What's included

20 videos4 assignments1 discussion prompt

20 videos Total 52 minutes

4.1.1: Externalities: Definition 5 minutes
4.1.2: Externalities: Allocative Efficiency: Refresher 2 minutes
4.1.3: Negative Externalities: Implications for Efficiency 5 minutes
4.1.4: Positive Externalities: Implications for Efficiency 4 minutes
4.1.5: The Coase Theorem 3 minutes
4.1.6: Interalizing a Negative Externality via a Per Unit Tax 3 minutes
4.1.7: Interalizing a Positive Externality via a Per Unit Subsidy 1 minute
4.2.1: Externalities: A Numerical Example 2 minutes
4.2.2: Interalizing a Negative Externality via Tax: A Numerical Example 4 minutes
4.2.3 Government Intervention in the Case of Externalities 2 minutes
4.2.4 Externality: Conclusion 1 minute
4.3.1 Pure Public Goods: Nonexcludable and Nonrival 3 minutes
4.3.2: Examples of Different Types of Goods 4 minutes
4.3.3: Implications of Nonexcludability 3 minutes
4.3.4: Free Riding 1 minute
4.3.5: Implications of Nonrivalness 2 minutes
4.4.1: The Role of the Government in Providing Public Goods 1 minute
4.4.2: Provision of Public Good by the Government 2 minutes
4.4.3: Free Riding as a Prisoners' Dilemma 3 minutes
4.4.4: Public Goods Conclusion 1 minute

4 assignments Total 120 minutes

4.1: Externalities 30 minutes
4.2: Solutions to Externalities 30 minutes
4.3: Public Goods 30 minutes
4.4: Solutions to Public Goods 30 minutes

1 discussion prompt Total 10 minutes

Externality and Government Intervention 10 minutes

Up to this point we assumed that there is full information in the market. We are now ready to relax this assumption as we introduce the concepts of moral hazard and adverse selection. We learn that asymmetric information may lead to market failure and we discuss some remedies. The last segment in the course is a reminder that besides efficiency, equity is also a criteria we all care about. A short introduction will explore how economist measure poverty and inequality.

What's included

10 videos3 assignments1 discussion prompt

10 videos Total 56 minutes

5.1.1 Adverse Selection 2 minutes
5.1.2 Adverse Selection: Consequences and Solutions 4 minutes
5.1.3 Adverse Selection: A Numerical Example 2 minutes
5.1.4 Adverse Selection: A Numerical Example with Private Information 2 minutes
5.1.5 Adverse Selection: Possible Solutions 3 minutes
5.1.6 Moral Hazard 2 minutes
5.1.7 Moral Hazard: Consequences and Solutions 3 minutes
5.2.1 Inequality 19 minutes
5.2.2 Poverty 13 minutes
5.2.3 Income Redistribution 7 minutes

3 assignments Total 74 minutes

5.1: Asymmetric Information 30 minutes
5.2: Poverty and Inequality 14 minutes
Final Exam 30 minutes

1 discussion prompt Total 10 minutes

Measuring Poverty 10 minutes

Instructor

Instructor ratings

(108 ratings)

Rebecca Stein

University of Pennsylvania

3 Courses 121,875 learners

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University of Pennsylvania

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Reviewed on Jan 24, 2022

Excellent course by Prof. Stein. One of the best, I have seen. Thanks for such a brilliant course.

Reviewed on Oct 20, 2016

Another fine course from Professor Stein. I particularly appreciated the final set of lectures, but all were well presented, understandable, and relevant.

Reviewed on Mar 20, 2025

Excellent coverage of market failures, including monopoly, externalities, adverse selection, and moral hazard.

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