Assignment Writing Help on Market Failure

MARKET FAILURE

Market failure refers to a condition whereby a free market falls short to efficiently allocate resources leading to unattractive outcome. Market failure narrowly covers externalities that entail public goods, but it majorly includes anti-competitive performances. The key examples of market failure are externalities, insufficient public goods, and market power. Market power takes place when economic actors are in a position to exert influence on prices in the market and the amount of goods sold resulting in imperfect competition (Econlib.org, 2015). Market failure is not just as a result of an increase or decrease in the cost of the commodity, but it may take place when a firm does not take into consideration all expenses of production or when the produced goods can be consumed by everyone at a free cost. The various categories that exist in a free market include the following; externalities both negative and positive, imperfect competition and public goods.

Types of Market Failure

Externalities

Negative externalities are when the social expenses are more than private expenses paid by producers. A good example of negative externalities is pollution from cigarettes. Negative externalities can be solved through the use of regulations. For the case of cigarettes, they have a negative impact on the health of individuals. As a result, the government should the maximum quantity to be produced making the supply curve to shift upwards to attain maximum quantity. Negative externalities can also be solved through the use of indirect taxes. Indirect taxes refer to taxes levied on expenditure of goods, security, tobacco, law and order among others.

Positive Externalities

Monopoly is another reason for market failure. Monopolies produce commodities in small quantities and sell them at increased prices to a level that the market cannot afford. This results in a surplus in the market because individuals cannot afford to buy the goods. Examples of monopolies are PUAS, TNB, and Bhd who are the key providers of electricity.

There are various examples of externalities globally and they include the following;

In a society where there is no properly defined right of environment, one can easily pollute air or water. This is because these polluters do not have any personal expense from the pollution they cause, but the whole community suffers because of pollution. The difference between a private and social cost makes most of the individuals to select the socially undesired act devastating the economic efficiency of a market economy. A similar example is applicable to beekeepers. There is no proper benefit of a bee fly, and an s a result the social benefit of a beekeeper is more than the private benefit.

Common Property

Another cause of market failure is common property resources. The government charges a zero price on all common properties. Common properties refer to those properties whose access is not controlled and they do not have a specific owner.  

Public goods

A public good refer to facilities or properties that can be used by several consumers directly without reducing the rate of consumption to any individual. Therefore, a public good is non-excludable and non-rival. A consumer cannot be denied the opportunity to consume a good even if he has not paid for it (Econlib.org, 2015). A good example of a public good is a light house whereby every person enjoys. The fact that one person may take an advantage of light house; another person may not take a similar advantage because the government may fail to produce that type of a commodity because of increased expenses.

Income Distribution Failures

Scenarios of externalities and anti-competitive behavior occur because of failures in the protection of property rights. However, failures in income distribution happen when the market fails to achieve a socially optimal allocation (Economicshelp.org, 2015). This can happen even where effective protections of property rights exist. Where the market fails to eliminate this inconsistency, it is reasonable to conclude that some people earn unjustifiably low income, which implies that their property rights are not safeguarded. How property failure is defined is differs from one scholar to another, nonetheless, the property rights as a concept incorporates the needs of people, while the property right in a narrow sense relates only to a person`s ability and performance to earn some form of income.

Competition Failures

The crucial source of anti-competitive behaviors is the main position of one agent or various agents in the market. The leading player enjoys a better bargaining power to improve. Because all transactions take place on regular basis, the outcome is that transfers of income and property may not be challenged irrespective of how abnormal the related income may be. The negotiating power of an agent is to show the value of the agents’ ability to satisfy the desires of others. A good example of competition failures is a monopolist who produces high quality products at a reduced cost than others such that his price makes him to be popular. In such a case, a monopoly may be considered a prize awarded because he will be the winner for competition in his respective sector.

References

Econlib.org. (2015). Market Failures, Public Goods, and Externalities, College Economics Topics | Library of Economics and Liberty. Retrieved 13 April 2015, from http://www.econlib.org/library/Topics/College/marketfailures.html

Economicshelp.org. (2015). Market Failure | Economics Help. Retrieved 13 April 2015, from http://www.economicshelp.org/micro-economic-essays/marketfailure/