Economics of Market Failure :: Government Intervention

Market failure has become an increasingly important topic for students. In simple terms, market failure occurs when markets do not bring about(predicate) economic efficiency. there is a clear economic case for presidential term intervention in markets where some(prenominal) form of market failure is taking place. Government can justify this by saying that intervention is in the public interest. 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 whitethorn not always allocate strange resources efficiently in a way that achieves the highest total social welfare.There are plenty of reasons why the normal operation of market forces may not lead to economic efficiency. customary GoodsPublic Goods not turn ind by the free market because of their two main characteristics Non-excludabilitywhere it is not possible to provide a good or service to one person w ithout it thereby being available for others to enjoy Non-rivalrywhere the consumption of a good or service by one person will not counteract others from enjoying itExamples Streetlighting / Lighthouse Protection, Police services, Air defense systems, Roads / motorways, Terrestrial television, englut defense systems, Public parks & beachesBecause of their nature the private sector is supposed(prenominal) to be willing and able to provide public goods. The government thusly provides them for collective consumption and finances them through general taxation. deserve GoodsMerit Goods are those goods and services that the government feels thatpeople left to themselves will under-consume and which accordingly oughtto be subsidized or provided free at the point of use. both(prenominal) the public and private sector of the economy can provide sexual moralitygoods & services. Consumption of merit goods is thought to generatepositive externality effects where the social benefit from consumptionexceeds the private benefit.ExamplesHealth services, Education, Work Training, Public Libraries,Citizens Advice, InnoculationsMonopolyFew modern markets meet the stringent conditions required for a perfectly competitive market. The existence of monopoly power is oftenthought to create the potence for market failure and a need forintervention to correct for some of the welfare consequences ofmonopoly power.The classical economic case against monopoly is that Price is higher and proceeds is lower under monopoly than in a competitive market This causes a net economic welfare loss of both consumer and producer inordinateness Price marginal cost - leading to allocative inefficiency and a pareto sub-optimal equilibrium. See also the muse page on economic efficiency Rent seeking demeanor by the monopolist might add to the standard