Reasons for Market Failure and the Roles of Government

As of now, you are all most likely aware that our nation’s economy is rapidly declining because of the stock market crash. What you may not know is that your father and I have lost our life’s savings because of it. You see, your father and I decided to invest in some shares, hoping to make a profit in the long run. What a mistake that turned out to be! Although we only used a miniscule portion of our money, we bought the stocks on a margin, receiving loans from the bank. When the market crashed, our bank announced that all loans must be fully paid off.

Public goods are non-competitive, and they can be consumed by many people, and a marginal cost for increase in consumer spending is zero. Consumers get some effectiveness from public goods, and its consumption of the marginal cost for a certain degree of effectiveness is zero. From the perspective of efficiency (price equal to marginal cost), t all people should enjoy free public goods. If public goods are produced by the private sector, then they will be bankrupt.

Market failure exists when the operation of a market does not lead to economic efficiency. It is a situation where a free market does not produce the best use of scarce resources. Typical examples are when externalities are present, when there is monopoly power or where it is necessary for public and merit goods to be provided by the government or even when there is possible excessive profits or

In today’s world, the more that the country needs a balanced-role government in the federal economic policies. The economy is in tight competition due to globalization. The mechanized production can deflate prices if left uncontrolled. Also uncontrolled flow of money will lead to economic crisis. Right before an inflation or deflation happen, the government should intervene and stabilize the

Government intervention is common in today’s market society. Although difficult to identify at times, it is ever present in most transactions that occur. The idea behind the involvement is promotion of the welfare of the citizens that reside within the government’s rule. Whether establishing or promoting economic growth, employment, income equality, or stabilizing interest rates, the government feels that their hand in the transaction is for the benefit of the consumer. Market failures can be argued in favor or in contradiction of big government. No matter the opinion of the individual, the masses are able to enjoy cleaner air, water, and ground due to increased guidelines set by governing officials.

Efficiency is important to producers, consumers, and society as a whole because the resources are scarce. The people have to decide to use the resources to increase its benefits. When a resource are used to produce goods and services it make it hard to use for another goods and services. So the best way to understand economy is to allocation resource is to produce more goods. In this type of economy production possibilities frontier (PPF) graph can be shown of the production of two goods. Producers could lose money if they produce a good and the demand of the produce is low because less people are going to buy the product. This effect consumer by how high and low the demand is. If the demand is high then the price of the goods is low. If the demand is low then the price of the goods is high.

A market failure is when a free market fails to appropriate resources efficiently. It occurs when the supply of good or service is insufficient to meet the demand. Government regulations that promote social well being results in a stages of market failure.economist identify market failure to be monopolies,missing markets incomplete markets, demerit goods and negative externalities . health care in america is a market failure were the externalities of the system I'd the care provided to others. Benefiting from people being healthy reducing any illnesses.in health are there are to many uncertainties.there will be people who will not pay.for example if a person who is always healthy and less propable of getting sick is not going to pay for health

The appropriate role of government in the economy consists of six major functions of interventions in the markets economy. Governments provide the legal and social framework, maintain competition, provide public goods and services, national defense, income and social welfare, correct for externalities, and stabilize the economy. The government also provides polices that help support the functioning of markets and policies to correct situations when the market fails. As well as, guiding the overall pace of economic activity, attempting to maintain steady growth, high levels of employment, and price stability. By applying the fiscal policy which adjusts spending and tax rates or monetary policy which manage the money supply and control the

Changes to indirect taxes in particular can have an effect on the pattern of demand for goods and services. For example, the rising value of duty on cigarettes and alcohol is designed to cause a substitution effect among consumers and thereby reduce the demand for what are perceived as “de-merit goods”. In contrast, a government financial subsidy to producers has the effect of reducing their costs of production, lowering the market price and encouraging an expansion of demand.

This essay seeks to explain what are monetary and fiscal policy and their roles and contribution to the economy. This includes the role of the government in regulating the economical performance of a country. It also explains the different features and tools of monetary and fiscal policy and their performance when applied to the third world countries with a huge informal sector.

In micro-economics market failure is characterized by resource misallocation and subsequent Pareto inefficiency. Just as the invisible hand falters, so is the case that the unregulated markets are incapable of solving all economic problems. In laissez-faire economy, market models mainly monopolistic, perfect competition and oligopoly are expected to efficiently allocate resources for the “welfare benefit” of the society. However individualistic and selfish private interests divert the public benefits thereby prompting government intervention to correct the imperfection which may lead to disastrous economic impact. Although corrective intervention policies by government may not necessarily address the underlying imperfection induced by

Regulations imposed by the government in any economy determine the market efficiency and growth. Policies and laws governing the flow of goods and out flow determined the internal trade affairs. When the government formulates policies and regulations, which is the market conducive, efficiency is enhanced. In such instances, the outcomes of the market yields can be predicted. Such ability of the policies and regulations to enhance efficiency in the markets can be enabling the government to have prior arrangements and plans concerning future economic goals. On the other hand, as the governing body there is a need to establish the effectiveness of the current policies in enhancing marketing efficiency. However, there is a need to establish the criteria for determining the correctness and effectiveness of the regulations which are to be set. Governing body should intervene in the control of the market regulations though independent bodies and private sectors should be involved in such regulations formulations. Many economies, such the United states and United Kingdom, the government has the power to intervene in the market policies. When the market fails in such instances, the government is blamed for the failure. The modern economies advocates for more freedom of choice in the formulation of regulations of the markets. Others concentrate on the efficiency of the policies and regulations in the achievement of the market goals.

“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.

Will deploying the EMV technology protect the U.S. payment systems from suffering market failure? Market Failure is present when card fraud costs U.S. businesses billions of dollars. It was credit and debit card fraud cost $8.6 billion in 2014 and was estimated to increase to $10 billion or higher in 2015 (Austin, n.d.). This money spent on these losses results in the inefficient use of funds or income by consumers, merchants, card issuers and financial institutions.

Researchers (Romer, 1986; Eckaus, 1989; Solow, 1990; Murphy et al., 1989) justified the rationale for government intervention in the context of industrialized nations. The regulations also had frequently been justified in developed economies as a mean of maintaining financial stability (Cheng, 1986).However; the historical evidence did not fully endorse the view that government intervention ultimately delivers faster economic growth. The intervention led to more intervention and soon the financial markets were dominated by government interference in terms of both the direction and price of credit. A prevalent feature of this period was a very slow results from controls on the financial system, and often a negative interest rates on both deposits and loans (Blejer, 1983; Diaz-Alejandro 1985; Hanson and Neal, 1985;Fry, 1990; and Hanson and Rocha,1986).