Market Failure

Topics: Supply and demand, Economics, Market failure Pages: 7 (2112 words) Published: January 7, 2013


The existence of the market have a very important function. For consumers, the market will make it easier to obtain goods and services daily needs. As for the manufacturers, the market becomes a place to facilitate the distribution process of goods production. In general, the market has three main functions, namely as a means of distribution, price formation, and as a promotion. However, with the passage of the economic circulation, a lot of things that would happen imbalance in it. Which must all aim to make a profit as much as possible regardless of the result of the surroundings. Therefore there will be market imperfections or market failures in the run the all functions.

So I will tell various things that would pertain to the market mechanism and its failure to operate as well as the causes and solutions of market failure.


1.Market Definition and Function

The market is people who have a desire to be satisfied with money to spend and the willingness to spend it or it can be defined as a meeting place for buyers and sellers to conduct economic activity in the form of sale.

In general , the market has three main functions, namely as a means of distribution, price formation, and as a promotion.

a. Markets as a Means of Distribution
The market is a function of distribution locations expedite the process of delivery of goods or services from producers to consumers. With the market, manufacturers can relate either directly or indirectly, to offer their products to consumers.

b. Market as Shaper Price
The market is a meeting place between sellers and buyers. In this market sellers offer goods or services to the buyer. Buyers who need the goods or services will try to bargain the price of goods or services, so that there was a bargain between the two parties. After the agreement, the price is formed. Thus, the market in that it can serve as a shaper prices.[pic] [pic]

c. Markets as a Means of Promotion
Market as a means of promotion means to market a place to introduce and inform the goods / services on the benefits, advantages, and distinctness to consumers. Promotions done to attract buyers to the goods or services are introduced. Promotion can be done in various ways, among others, put up banners, flyers, exhibition, by means of radio or TV. Many ways the campaign carried out by the manufacturer, making consumers more selective in choosing the items to be purchased. Usually the manufacturers who offer goods with cheap price and good quality will be the choice of consumers.


2. Market Mechanisms
The market mechanism is the trend in the market is free to change the price until the market is balanced (the quantity supplied equals the quantity demanded). Standard economic theory says that even when the institutions other than free market may produce an efficient and optimal allocation. In other words, if the market does not exist, the allocation of resources will not occur efficiently and optimally. In some ways, the market mechanism can not work optimally on several natural resources.


Basically, the allocation of goods and services within a community can do at least through two types of mechanisms. That is through market mechanisms and bureaucratic mechanisms. With a number of the required conditions, the market mechanism is considered as a mechanism to encourage the efficient use of resources. But market failures can also occur in the allocation of goods and services. This could be due to its eksternalitasnya public goods. This is the kind of goods and services (with mixed goods) which will be distributed through bureaucratic mechanisms.  

Due to the different market mechanisms, market prices had reached a different - different. Sometimes - sometimes...
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