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Economic and social problems that may result from market failure? - Teddy B - 10-12-2012 10:32 AM
What is the social and economic problem?
how does this result from market failure?
thanks
- Anita A - 10-12-2012 10:40 AM
Well there are several economic problems tied to market failure. The first one is a negative externality where essentially markets produce goods above the socially optimum level. A good example of such a problem is pollution where the market fails to take into account the social cost it imposes in its calculation of the cost and thus exceeds the social optimum. The second economic problem are positive externalities where markets produce goods below the socially optimum level because they fail to take into account the social benefits of the goods they provide. A good example of this is health care where markets fail to take into account the large social benefit and thus underproduce health care. The two final economic problems resulting from market failure are monopolies where the market fails to create competition and public goods. Public goods are goods that once provided their quantity does not perish with consumption and the consumption of a public good by one does eliminate others from using it. Essentially it is non excludable (you can not exclude others from using it) and non rival (your consumption does not reduce the amount available for others) which means that markets will not provide this as they have no means of extracting income from it.
I hope this helps.