What Is Meant by Market Failure and How Can the Government Attempt to Correct It?
Global Business Environment
Assignment 1
What is meant by market failure and how can the government attempt to correct it?
Why do some markets fail? Market failure is said to occur when the price mechanism is unable to allocate resources efficiently. Meaning that the forces of supply and demand lead to a net welfare loss in society, that the resources were not used to their maximum capacity. When there is market failure it is down to the government to correct them. Here are five way in which the market can fail • Externalities • Asymmetric information • Monopoly market • Public Goods • Factor immobility
Externalities:
“The social optimum output or level of consumption diverges from the private optimum.” (tutor2u,n/a,n/a)
Externalities are external cost and external benefits which occur due to economic activity. However externalities do not involve the buyer or the seller in the purchase of a good or service, as they are only concerned about their private wants. But the effects are felt by the third party, these can be split into two sections. Positive and negative externalities.
Positive externalities:
This is when all the benefits of a good or service are not appreciate. Education is one example of a positive externality, when one person is educated they then have the knowledge to educate others, creating a positive knock on effect. However these benefits are not realised by society and therefore they are under produced.
Negative externalities:
This is when producers or consumer cannot be charged with all the cost. For example air pollution. The producer emits gases fumes from the factory, which cause acid rain and harm to the environment. Consumers smoke cigarettes affecting other people healthy. These are external cost which affect the third party. However they are in high demand and producers manufacture more of the good than is socially beneficial.
However the government attempts to correct this by
Assignment 1
What is meant by market failure and how can the government attempt to correct it?
Why do some markets fail? Market failure is said to occur when the price mechanism is unable to allocate resources efficiently. Meaning that the forces of supply and demand lead to a net welfare loss in society, that the resources were not used to their maximum capacity. When there is market failure it is down to the government to correct them. Here are five way in which the market can fail • Externalities • Asymmetric information • Monopoly market • Public Goods • Factor immobility
Externalities:
“The social optimum output or level of consumption diverges from the private optimum.” (tutor2u,n/a,n/a)
Externalities are external cost and external benefits which occur due to economic activity. However externalities do not involve the buyer or the seller in the purchase of a good or service, as they are only concerned about their private wants. But the effects are felt by the third party, these can be split into two sections. Positive and negative externalities.
Positive externalities:
This is when all the benefits of a good or service are not appreciate. Education is one example of a positive externality, when one person is educated they then have the knowledge to educate others, creating a positive knock on effect. However these benefits are not realised by society and therefore they are under produced.
Negative externalities:
This is when producers or consumer cannot be charged with all the cost. For example air pollution. The producer emits gases fumes from the factory, which cause acid rain and harm to the environment. Consumers smoke cigarettes affecting other people healthy. These are external cost which affect the third party. However they are in high demand and producers manufacture more of the good than is socially beneficial.
However the government attempts to correct this by
Bibliography: http://economics.about.com/od/monopoly-category/a/What-Is-A-Monopoly.htm http://www.tutor2u.net/blog/index.php/ib-diploma/comments/section-1-market-failure-6-types-of-market-failure http://www.tutor2u.net/economics/content/topics/marketfail/market_failure.htm http://www.economicshelp.org/microessays/markets/monopoly.html http://www.economicshelp.org/marketfailure/positive-externality.html http://quizlet.com/3651634/economic-unit-1-how-do-governments-attempt-to-correct-market-failure-flash-cards/ http://poli.haifa.ac.il/~levi/failure.htm http://www.economicshelp.org/dictionary/a/asymmetric-information.html http://x-stream.leedsmet.ac.uk/webapps/portal/frameset.jsp?tab_tab_group_id=_2_1&url=%2Fwebapps%2Fblackboard%2Fexecute%2Flauncher%3Ftype%3DCourse%26id%3D_40607_1%26url%3D