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Economics of market failure - There is a clear economic case for government intervention in markets where some form of market failure is taking place.
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ECONOMICS OF MARKET FAILURE Market failure has become an increasingly important topic for students at A level. There is a clear economic case for government intervention in markets where some form of market failure is taking place. Government can justify this by saying that intervention is in the public interest. Basically market failure occurs when markets do not bring about economic efficiency. Government intervention occurs when markets are not working optimally i.e. there is a Pareto sub-optimal allocation of resources in a market/industry. In simple terms, the market may not always allocate scarce resources efficiently in a way that achieves the highest total social welfare. EXAMPLES OF POTENTIAL MARKET FAILURE There are plenty of reasons why the normal operation of market forces may not lead to economic efficiency. Public Goods Public Goods not provided by the free market because of their two main characteristics * Non-excludability where it is not possible to provide...
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