6. Defining and Illustrating Market Corrections

This chapter explores the concept of market corrections, which are improvements in market performance that can address alleged market failures and offset the costs of government interventions. The text defines market corrections and illustrates them through various examples, such as the introduction of cell phone service and the rise of ridesharing services. It also examines why market corrections are possible in theory, highlighting the dynamic forces of competition and technological advance. The chapter uses stylized graphs to illustrate different types of market corrections, including those related to monopoly abuse of market power, natural monopoly, imperfect information, negative externalities, and public production. The text concludes by discussing the potential for market corrections to address issues related to technological advance, such as job displacement and the abuse of opioid-based drugs.