In Micro 1, you analyzed a single market (say, apples) holding everything else constant (Ceteris Paribus). In Micro 2, we remove that assumption.
| Market Failure | Definition | Micro 2 Solution | | :--- | :--- | :--- | | | Cost/benefit affects a third party not involved in the transaction (e.g., Pollution). | Pigouvian tax (tax equal to external cost) or Coase Theorem (private bargaining with clear property rights). | | Public Goods | Non-rival (use doesn't reduce supply) and Non-excludable (cannot prevent use). (e.g., National defense). | The "Free Rider Problem." Usually requires government provision. | | Natural Monopoly | High fixed costs, low marginal costs (e.g., Utilities). | Price cap regulation, Average Cost pricing, or nationalization. | | Asymmetric Info | One party knows more than the other. | Regulation, warranties, or screening contracts. | microeconomia 2
Standard university courses often rely on advanced texts such as: Bernheim & Whinston: In Micro 1, you analyzed a single market
Micro 2 transforms you from a price-taker to a strategy-maker. | Pigouvian tax (tax equal to external cost)