Free Essays On Market Failure

Essay about Market Failures: Government Intervention

652 WordsOct 15th, 20113 Pages

Dan Mattera

September 27, 2010

BUS 345 Essay #1

What is the basis for the contention that governments should intervene to correct market failures? (Be sure to explain what market failures are and why they are significant without providing superficial, rote definitions.) Contrast this with the argument that laissez faire is preferable to intervention. (If possible, link this to the idea of government failure, the iron law of public policy, rent seeking, and unintended consequences.)

Imagine a grading rubric in which failure is considered everything except perfection. In the academic world this seems absurd but in economics whenever markets deviate from any of the ideal conditions necessary for perfect competition the result…show more content…

60) at an exponential rate. Those who favor government intervention see it as reclamation of control that the government once held over corporations that kept the interest of citizens and society ahead of the shareholder’s (Korten, 61-65).

Despite this incredible accumulation of power some still believe that government intervening on market transactions is a removal of freedom and can too easily lead to the sort of coercion seen in many communist states. Those who occupy this end of the spectrum argue that laissez faire maintains an efficient, innovative and mutually acceptable market system. They also contend that in general government intervention fails at implementing proper public policy to such an extent that they themselves produce a net social cost. For the most part, these government failures are not random. Perhaps the greatest cause for these miscarriages is human rent seeking which is when individuals exercise state power for the benefit of personal gain or that of special interest groups. This coincides with another cause for government failure referred to as the Iron Law of Public Policy. What this means is that by simply acting to benefit one party the government will inevitably deal out direct or indirect damage to another.

Show More

Market Failure



Market Failure

Market failure occurs due to inefficiency in the allocation of goods and services. A price mechanism fails to account for all of the costs and benefits involved when providing or consuming a specific good. When this happens, the market will not produce the supply of the good that is socially optimal  it will be over or under produced.
In order to fully understand market failure, it is important to recognize the reasons why a market can fail. Due to the structure of markets, it is impossible for them to be perfect. As a result, most markets are not successful and require forms of intervention.
Reasons for market failure include:
Positive and negative externalities: an externality is an effect on a third party that is caused by the consumption or production of a good or service . A positive externality is a positive spillover that results from the consumption or production of a good or service. For example, although public education may only directly affect students and schools, an educated population may provide positive effects on society as a whole. A negative externality is a negative spillover effect on third parties. For example, secondhand smoke may negatively impact the health of people, even if they do not directly engage in smoking.
Environmental concerns: effects on the environment as important considerations as well as sustainable development.
Lack of public goods: public goods are goods where the total cost of production does not increase with the number of consumers. As an example of a public good, a lighthouse has a fixed cost of production that is the same, whether one ship or one hundred ships use its light. Public goods can be underproduced; there is little incentive, from a private standpoint, to provide a lighthouse because one can wait for someone else to provide it, and then use its light without incurring a cost. This problem - someone benefiting from resources or goods and services without paying for the cost of the benefit - is known as the free rider problem.
Underproduction of merit goods: a merit good is a private good that society believes is under consumed, often with positive externalities. For example, education, healthcare, and sports centers are considered merit goods.
Overprovision of demerit goods: a demerit good is a private good that society believes is over consumed, often with negative externalities. For example, cigarettes, alcohol, and prostitution are considered demerit goods.
Abuse of monopoly power: imperfect markets restrict output in an attempt to maximize profit.

View Full Essay

Related Topics

GoodsMarket failurePublic economicsWelfare economicsEnvironmental economicsDemerit goodMerit goodExternalityPublic goodMarketSpillover effectSocial cost

More Free Essays Like This

Forest Policy In Malaysia

American Revolution

Human Rights

First British Industrial Revolution


Bank War

Causes Of The Great Depression

U.S. Budget Deficit - Good Or Bad?

Causes Of The American Revolution

Scams On The Elderly: Can We Do Anything About It?

Wal-Mart: Wrecking the American economy one smile at a time?


The Enviromnetal Degradation As A Result Of Overpopulation

The New Age After The 1500s

Keynesian Theory And The New Deal

Cotton?s Impact On The United States Before The Civil War

Monasticism In The Middle Ages

The Aztecs And The Incas

Robin Hood

Social, Economical, And Political Effects Of World War I

Analysis Of Karl Marx And Communism

All-American Boy

Napoleons Conflict With Russia

Comparison Of Trade Rivalries

The True Story Of A Black Youths

Quick Look

Starving The Hungary

Sofa Wars

Coke Vs. Pepsi: Fighting For Foreign Markets

The Monopoly

Just Stop It

Monopolies - A Case Study

Industrial Revolution

Progressivism And Its Effects

Marco Polo


Thomas Woodrow Wilson

Why The North Won The Civil War

The Great Depression

Napoleon The Russian Conflict

The Presidency Of FDR

HRM Term Paper on ADA

Brief Look At The Renaissance



The U.S. Penal System

America?s Involvement In World War Two


Taiwanese Development Model

Events Leading Up To The American Revolution

HomeSubjectsTopicsEssaysSupportTerms & ConditionsPrivacy PolicyDCMA

Copyright © 2018Digital Essays. All Rights Reserved.

Categories: 1

0 Replies to “Free Essays On Market Failure”

Leave a comment

L'indirizzo email non verrà pubblicato. I campi obbligatori sono contrassegnati *