Market Failure In The United States

“Analyze the arguments for government intervention as opposed to arguments for market-based solutions. Hint: See the information in our course textbook on market failures.”

1A. Market failure is a situation in which the allocation of goods and services is not efficient. In any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This is a direct result of a lack of certain economically ideal factors, which prevents equilibrium.

The key ideas of market failure is the non-appearance of specific goods and services, competitive markets delivery the efficient quantity of all goods and services – that is the amount which best meets people’s requirements and favourites, given scarce resources. Market failure refers definitely to the causes of the failure, which is problems with the techniques through which the market works, not the results of the failure to deliver a certain outcome. The public sector should only interfere in the economy when markets are not well-organized and when the involvement would improve productivity.

Government plays a crucial role in the market economy by ensuring the laws and regulation are abide by, and control the production of the private sectors, although, over the years its efforts in controlling such economies are minimal and insignificant. Market forces of demand and supply play a major role in setting trends that such market economies follow. Economic growth, inflation, interest rates, wage rates of workers and unemployment rates are some of the fields the government takes part in controlling, to boost the Gross National Product (GNP) of the state.

Market failure is the case that the market cannot allocate goods and services efficiently (Pablo Garcia, 2003). However, market failure is often used to describe the situation where the market power cannot meet the public interest (Pablo Garcia, 2003).

Coordination failures by private markets are perceived to contribute significantly in inefficiency. Negative externalities like environmental pollution and positive externalities like focusing on public benefits and ignoring the private benefits significantly contribute to market failures. Fundamental questions have been raised to determine the appropriate time government intervention is required and the magnitude of inefficiency to warrant supposedly intervention or to let the market correct itself. Stiglitz, argued that inefficient government microeconomic policies to address the market gap often tends to exacerbate the existing problem or yield unproductive results in the economy (34).

When discussing the concept of Market Failure and the implications for Public Policy, the correlation, between the two is directly related to government intervention on market efficiency. Market Failure is discussed in the context of Pareto efficiency in the Free Market. Certain conditions must be met or Market Failures are inevitable and the government must intervene to correct the market. The first fundamental theorem of welfare economics asserts that under certain conditions which makes markets not Pareto efficient results in Market Failure (Stiglitz, 2000, p. 77). The conditions of market failure results when marginal cost (MC) does not equal marginal benefit (MB) and neither equals price (P), to reach equilibrium MC=MB=P and the market is Pareto efficient. The conditions under which there is not Pareto efficiency in the market and results in Market Failure are; failure of competition, public goods, externalities, incomplete markets, information failure, unemployment, inflation and disequilibrium (Aikins, 2015). If any of these conditions exist in the market, it provides the justification for government to address the failures through policies designed to reach Pareto efficiency. Pareto efficiency or Pareto optimal is defined as, to have resource allocation that have the property that no one can be made better off without someone being made worse off. Pareto efficiency in free markets incorporates involvement where Government is expected to protect citizens and

Some of the reasons which cause government interventions are in order to overcome market failure, to accomplish an equal distribution

What is market efficiency? Market efficiency is defined as all participants in a market can get the maximum benefits and used the minimum cost and effect to transact (BusinessDictionary.com, 2011). Besides that, the definition of market efficiency is covered by the market and investor group. In other words, efficiency refers to the productivity or the size of the economics pie. If the size of economics more big, the standard of living of people will be greater. Market efficiency means that there are no externalities, no market power or competitive power and it has the complete information. According to Dothan (2008), “the market efficiency is

Markets are the institutions where the exchange of goods and services among individuals collective agents occurs. The exchange of these goods and services utilizes money as the medium through which equivalence of worth and value is given to the goods and services (Keech and Munger 4). This leads to the formation of prices given for the goods and services. Additionally, markets may be categorized in accordance with the commodities and services traded in them where these categories entail financial markets, labor markets, and housing markets. Similarly, the scope under which these items are traded may provide another level of categorization where some may occur throughout a region, nationally or internationally (Pinotti 2). These may be coupled with categorization in terms of structure where various entities include competitive markets, oligopolistic markets, and monopolistic markets.

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.

“Market failure occurs when resources are not allocated efficiently - in other words total economic surplus is not being maximised” (Reference 1). Market failure is when the market is not working at equilibrium which is also known as total surplus or market efficiency. Market failure can happen when the Government impose a tax, price ceiling, price floor or a quota, this then causes price the rise of fall, which means total surplus will not be reached. The diagram attached shows a tax imposed on the banana market. This has caused prises to rise, and demand to fall. It has also caused a deadweight loss. A deadweight loss is an avoidable loss bared by both the consumer and producer, that reduces the total surplus. This means that the market is not producing at equilibrium, therefore it has caused market failure. In this case the 50c tax has caused the decrease in consumer and proud er surplus to be the same but in most cases it will be swayed one way. The tax is 50c but the price has only increased 25c, this means that the profit has decreased 25c per item as well. Another way the market can fail is when a firm or multiple firms have to much power in the market place. This is called a monopoly market or oligopoly if there are multiple firms. This causes market failure because it allows the firms to be price makers instead of price takers. This is because the consumers have no other option.

Weimer and Vining discuss market failures as one justification for government intervention in market relations. Define market failures and at least three distinct types of market failures. Provide three concrete, specific examples of market failures and discuss policy instruments that might be proposed to address each market failure. What are the potential problems or challenges associated with each instrument that might make its use difficult?

Market Failure is an economic situation where free market fails to allocate resources efficiently. It is the abbreviated situation in the any market where the curves

At the core of the theory justifying the need for government intervention lies conviction of the existance of market failure, defects that make certain market situation, which by its nature is to aim to maximise satisfaction / utility and optimally allocate resources, it stops - in the sense of optimum Pareto- function properly (Francis M. Bator, 1958) . In other words, the market reduces the utility and waste resources. It must therefore step a mediator- usually government or legislative body- which will correct existing errors, improving the existing condition of things, that is, increasing the usability and improving allocation. Interventionism is often called the third way, mixed economy, social market economy or the welfare state and the main purpose of it is to achieve compromise between capitalism, which is identified with the market econmy, and socialist system where the predominant form is centrally planed economy. The term market failure, which for he first time appeared in 1958 (Francis M. Bator, 1958), defines situation where the market does not perform in a rational ways its basic functions; motivational and allocative. According to F.M.Bator, the market fails when people are fully dedicated to their private interests what in fact leads to inefficiency. F.M. Bator argues that businessmen`s desire for a ``quiet life`` is oposed to the fact that ` they have to do with the efficiency of ``real life`` market institutions operated by ``real life`` people in a