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The Market for Employee Effort
Imagine a company wants to pay its employees based directly on their level of effort, rather than hours worked or output produced. Many employees would agree to this if their true effort could be perfectly and continuously measured. However, a formal market for 'employee effort' does not exist. Briefly explain why this market is considered a 'missing market'.
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Economics
Economy
Introduction to Microeconomics Course
CORE Econ
Social Science
Empirical Science
Science
Application in Bloom's Taxonomy
Cognitive Psychology
Psychology
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Missing Markets as an Explanation for Unaccounted Social Costs
The Market for Used Laptops
Consider a situation where an individual wants to borrow money from a peer, promising to use the funds responsibly and repay the loan promptly. The peer would be willing to lend if they could be certain of the borrower's future responsible behavior, but they ultimately refuse the loan. Which of the following best explains why a formal market for 'loans based on promises of future good behavior' fails to emerge in this scenario?
The Market for Residential Quiet
The Market for Employee Effort
A pharmaceutical company develops a new drug but decides not to sell it because the estimated production costs are higher than the price any consumer would be willing to pay. This situation is a classic example of a missing market.
Analysis of an Uninsurable Risk Market
For each scenario described, match it with the primary obstacle that prevents a formal market from emerging for the good or service in question.
The Case of 'Fired for Cause' Insurance
A student is willing to pay a significant premium for a tutoring service that guarantees they will receive an 'A' in their course. A tutor would be willing to offer this guarantee if they could be certain the student would exert the necessary effort outside of their sessions. Despite the potential for a mutually beneficial exchange, a formal market for 'guaranteed grades' does not exist. Which statement best analyzes the fundamental economic reason why this market is 'missing'?
A talented but unknown artist would be willing to pay a gallery a large sum of money if the gallery would guarantee to make them famous. The gallery would be willing to accept this payment if they could be absolutely certain of the artist's future commercial success and appeal. Despite this potential for a mutually beneficial agreement, a formal market for 'guaranteed artistic fame' does not exist. Which of the following statements best analyzes the fundamental reason for this market failure?