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Market Failure And Its Effect On Society Essay

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Market Failure is due to an imbalance or a change in supply and demand of certain goods and services this, consequently, can lead to a shortage of products or an unnecessarily large inventory. Market failure can be caused by many different factors such as positive and negative externalities, imbalance of the price and quality of goods and services and also unrealistic projections for demand along with a plethora of other factors. The perfect market, is an efficient organisation that meets all the wants and desires of the public without any wastage of supplies and resources. However, there are many failures to the perfect market that cause it to be ineffective. This essay will highlight and explain the main causes of market failure, how they can be opposed and the effect market failure will have on society.
The idea behind the perfectly competitive market is that consumers buy whichever goods they wish or need with their income and suppliers are free to decide what they produce, how to produce it and what price to sell it at. For the competitive market to be efficient and effective, supply and demand must be at equilibrium. If demand for a good increases this will consequently cause a shortage, this will then cause the price to increase due to demand being higher than supply, as the price has increased demand will slowly decrease, this will continue to happen until demand and supply are once again in equilibrium.
There are many assumptions behind the competitive market that
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