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The Concept of Market Failure - Research Paper Example

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Market failure is an important concept which ekes the process of understanding the economic theories by the learners. This paper is aimed at undertaking a brief evaluation of the concept of market failure and the circumstances which lead to market failure…
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The Concept of Market Failure
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Download file to see previous pages Some economic theorist has disputed the authentication of the concept and claimed that the concept is fatally flawed. The paper is aimed at undertaking a brief evaluation of the concept of market failure and the circumstances which lead to market failure. The latter part of the paper will discuss the measures by the governments to correct these failures.
The notion of market failure is defined as the economic activities of the people undertaken in order to maximize their own profit rather than taking in view the profit of the whole society. In such cases, it is important for the governments to intervene in the market and implement several roles and regulations to turn the monopolist behavior in the right direction in order to save the combined interest of the society. Only in the particular situation of the market failure, the Government intervention is justified or in the other situation, the Government intervention makes things worse. The concept of Market Failure can be used to cover all the circumstances in which the unregulated market in (terms of direct price and quantity fails to achieve allocative efficiency. In other words, the distortion which prevents the visible hand from the efficient allocation of resources is described as Market Failure.
The most obvious case in which market profitability is deficient is when some benefits or costs incurred as a result of the project do not have market prices. This may occur because some of the benefits are of a public good or externality nature which, because of non-excludability and or non-rival ness, cannot be priced. Thus, for example, it is often argued that the expenditures on immunization or on education provide external benefits to those not actually being immunized or educated, and that, therefore, the profits from providing these services on competitive markets might understate the net social benefits of their provision. ...Download file to see next pagesRead More
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