Market Failure

By | February 8, 2014

Market failure is a concept within economic theory describing when the allocation of goods and services by a free market is not efficient. According to Wikipedia

market failure

There is more to market failure than just the collapse of a market. The government is also able to step in before a market failure to help bridge the gap. This can elevate the inevitable impact that it can have on the economic climate of that country.

There are many reasons why a government would feel that there was justification for the implementation of different actions and policies to protect those who they are there to protect and serve.

Examples of market failure

This is not about the collapse of the stock market or a company closing, this is about the market as a whole; the group or areas in a country that make it possible for the continued growth and development.

It is important to take into consideration when you own a business that you are there for your customers. But what if you are the only company that is offering these services? It could mean that you are charging higher rates, because there is no competition to keep your prices in the range that gives value for money.

If there are no rival companies offering similar services, then the need for competition is not valid; the prices are not challenged on a regular basis to make sure that the service they are offering is the best option for their customers.

Reasons for government intervention

There are reasons, and good reasons why the need for government intervention is required. This protects the individuals and it can also subsidize the services to make them available for all to use. The main areas of market failures, where there is a need for the intervention of the government, can be seen in the health industries, education and the access to the public libraries. If the government didn’t intervene in these areas, there is potential for those that can afford them would get the services whilst those that were unable to pay would not be entitled to the same privileges.

This is seen in the externalities of a potential market failure and they result in an inequality in the lives of those living in the country. This can be seen in the differences in the living conditions between those that are wealthy and those that are on low paid incomes.

How governments can help those on the low incomes to improve their quality of life can be in the form of benefits and even the implementation of the minimum wage, these all can have positive actions. If there is a way that by implementing the simplest of regulations, like a minimum wage can improve the lives of many.

But it can be at the cost to the economy. Companies have to find the difference in the amount of money that they pay their staff and this can come at the cost of jobs. These jobs would have provided an income and a quality of life for those looking for work and are typical part of the low paid workforce.

The implementation of these government policies stepping in to help, so that there is not a market failure is seen in the positive, but there are many factors that can highlight the negative impact. The benefit systems can and do get abused; the jobs that were once low paid become non-existent and they are then delegated to a smaller work force.

Therefore, there are many areas that need careful consideration to help to stabilize an economy, and many of these areas are not what you might expect, and you might never consider them as potential market failures.

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