IB PAPER 1 MARKET FAILURE - Essay Example

Market failure al Affiliation Introduction Market failure is an economic concept where the allocation of goods and services is not sufficient to serve a free market. Market failure is normally a societal perspective of what should or can be done to better the situation. Market failure always prompts for immediate government intervention in a particular market. 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 .

Market failure in energy supply Britain energy supply is dominated by six major companies which stand to make massive profits by ensuring consumers are hooked to the fossil fuels. The big six have a great monopoly against smaller producers. The big six maximize profits while passing the cost to the consumer. There occurs a market failure because of the stranglehold caused by big producers. According to The Guardian Tuesday18 October 2013, the big six energy companies supply 99% of British households and make massive profits from a stitched-up market.

They control almost all the markets energy supply. The guardian states that consumers are not supposed to pay high prices for energy bills while shareholders pocket greater profits from the situation. On a graphical representation the supply of energy to the market is steady while the demand for it rises exceeding supply hence the constantly raise the prices.Evaluation of the situation The market failure in Britain’s energy supply creates an environment which calls for aggressive competition from alternative energy sources.

it also creates the need to diverge to more eco-friendly sources of energy other than fossil fuel energy. Completion amongst the big firms sometimes drives energy prices down.On the other hand competition from the big six producers ensures that there is no fair share of the market for the smaller producers in the market .market rules also make it complex and imposed excessive costs and terms of trade make it hard for the small players.The effect on the energy suppliers is that they always reap big profit margins since there will always be demand for energy.

Their domination will ensure that smaller players remain less dominant in the market. Consumers will be forced to pay the high tariffs the producers impose as long as no alternative low cost energy sources are exploited. Final takeThe competitive market and the interest of consumers can well be met by actions that reduce barriers to engage in energy supply market by the government (complex red tapes, high cost, and terms of trade).the big six Britain producers of energy reaps the most profit from the market failure that exist thus the companies end up maximizing their profit margins .

the smaller players do not get a level play field to compete with the big six producers while the consumer bares the high cost of energy. Work citedMarket failure in energy supply. (2013).The guardian, 10-13