Nobody downloaded yet

Market failure and what government can do - Essay Example

Comments (0) Cite this document
Market failure is the failure of the market to yield efficient outcomes. Elaborating further, Stiglitz said that there are six situations in which markets are not efficient and these are referred to as market failures that provide a rationale for government activity…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.7% of users find it useful
Market failure and what government can do
Read TextPreview

Extract of sample
"Market failure and what government can do"

Download file to see previous pages Market failure is the failure of the market to yield efficient outcomes. Elaborating further, Stiglitz said that there are six situations in which markets are not efficient and these are referred to as market failures that provide a rationale for government activity.The six conditions in which markets fail to lead to efficient outcomes are those in which competition fails, situation in which public goods are involved, market situations in which there are externalities, situations in which markets are incomplete, situations in which information is imperfect, and situations in which there are macroeconomic disturbances (Stiglitz 2000, p. 77-85). For markets to lead to efficiency, markets must be perfectly competitive (Stiglitz 2000, p. 77). This means that there are no constraints for competition to prevail in the market. Examples of situations in which competition does not prevail are those involving monopolies and oligopolies. Monopolies are market situations in which there is only one seller while oligopolies are market situations in which there are only few sellers. Both monopolies and oligopolies can charge consumers prices that are higher than those which can prevail in perfectly competitive market settings.1 Public goods are those whose consumption is non-rival and non-excludable as opposed to private goods whose consumption are rival and excludable. Non-rival means consuming the good will not deprive others of the good. Road services or city lighting services, for example, are goods or services that are not deprived to others when an individual consume or use the good or service. They are also non-excludable in consumption because it is costly, feasible, or impractical to exclude others from consuming or using the good or service. In the literature of economics, economists usually use the term pure private goods and pure public goods to refer to pure cases but they recognize that there are goods in-between or public goods that have private goods characteristics as well as private goods that have public goods characteristics. Sometimes, these goods are also referred to as mixed goods.2 Externalities refer to effects on third parties other than the consumer or producer of the product. For example, consumer may use gasoline but parties other than the producer or consumer of the product receive the pollution. Externalities can be positive or something good such as the benefits to the environments of a certain car that does not use fossil fuel or it can be negative like that in car that pollutes the environment. Economic literature holds that when markets are competitive, prices almost equals costs and goods are produced at costs. However, because of externalities, markets can lead to situations in which goods may be overproduced or under-produced, depending on their effects to society.3 Incomplete markets refer to situations in which although the cost of providing the good is less than what consumers are willing to pay, the good is not produced just the same (Stiglitz 2000, p. 81). The situation of incomplete markets implies that there are things missing in the market because otherwise the good or service would have been produced if there is nothing that is missing in the market (Stiglitz 2000, p. 81). Incomplete markets can emerge when complementary services are lacking, transaction costs are too high, and the like (Stiglitz 2000, p. 81-82). It is possible that incomplete markets are one of the least studied market situation in the academic literature. The literature on the topic does not seem many. Information asymmetry or imperfection in information is also another cause for market failure to happen. For example, borrowers can know their risks as borrowers but lenders may not know the risks of lending to the borrowers. In another scenario, investors want to invest but they do not know the potential returns and possible risks in investments and, thus, they are constrained from investing. Finally, many scholars interpret ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Market failure and what government can do Essay”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1414292-market-failure-and-what-government-can-do
(Market Failure and What Government Can Do Essay)
“Market Failure and What Government Can Do Essay”, n.d. https://studentshare.org/macro-microeconomics/1414292-market-failure-and-what-government-can-do.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
What Is Meant By Market Failure And How Can Government Attempt To Correct It
In such a case, there exists another possible outcome where the market participants’ gains would compensate their losses. Market failure is a serious issue as in consequence it disrupts social and economic region of a particular region or even the whole country.
6 Pages(1500 words)Essay
Microeconomics: Government Intervention and Failure
 Scarce resources where there exists a free economic system are allocated using price mechanisms. In this case, consumer spending decisions and preferences, as well as business decisions on supply, combine in the determination of equilibrium prices. 
7 Pages(1750 words)Essay
Government Failure in Iceland
When asked about the systemic risks the Icelandic government referred both to its responsibility and to the public officials in ensuring overall stability. However, few if any could define in fact what "responsibility" means and if they do definitions will vary.
5 Pages(1250 words)Essay
A)'If property rights are not clearly defined, externalities such as pollution probably cause market failure'-explain b)'Since most government attempts to correct market failure fail, should governments leave the allocation of resources to market forces'
company that regularly emits air pollution will not be held liable for causing harmful effects not only to the environment but also the health of those individuals who live close to the manufacturing plant. Likewise, these people who are suffering from the negative effects of
6 Pages(1500 words)Essay
Market Failure
The idea of market failure comes into the picture when an individual is motivated by personal interests which may result in inefficiencies. There is possibility of improvement from the standpoint of the society. The idea
2 Pages(500 words)Essay
The interventions comes in terms of taxes, subsidies, bailouts, wage and price controls and regulation in an attempt to correct the failure which at times further aggravates the situation hence leading to government failure . Britain
2 Pages(500 words)Essay
Capitalism: Market Failure
These economic systems are based on different philosophies. Capitalism focuses on free market and liberalization where every player has a right to earn profits. Government control and intervention is only nominal in capitalistic economy. Communism, on the other hand, aims at a classless society where everyone is equal and state is extremely strong.
8 Pages(2000 words)Essay
Market failure: A case study

The author states that according to the classical school of thoughts, efficient outcome in the market might be achieved at some given conditions of price, cost of production, availability of products and entry barriers. The condition of efficiency is violated if the assumptions related to these factors fail to hold true.

6 Pages(1500 words)Essay
Market Failure and Government Failure in Europe
For several decades, a debate has been raging in development economics on the relative virtues of the free market as opposed to state intervention. With the help of analytical models of a market economy, the interventionists have demonstrated what they have considered as serious instances of market failures. That is to mean, the inability of a market economy to reach certain desirable outcomes in resource use.
7 Pages(1750 words)Essay
Identify three government market failures and describe their effects. As in past government failures in the world
In addition, businesses must bear the full cost of their activities and reap maximum rewards from their efforts to achieve economic efficiency. Government intervention sets in with the quest to regulate the market, and this often has negative effects. This step from the
6 Pages(1500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Let us find you another Essay on topic Market failure and what government can do for FREE!
logo footer
Contact us:
Contact Us Now
FREE Mobile Apps:
  • StudentShare App Store
  • StudentShare Google play
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • Miscellaneous
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us