what is market failure? anybody can tell me.?

[kammy]

what is the market failure? why govt has to interfere in it?

[Brandon B]

So, I'm guessing you're asking because of economics class. You'll want to look up and mention different types of market failures. Some examples are monopolies, oligopolies and externalities. A market failure is any time that a market can not successfully and efficiently allocate resources. My source will point you to a more thorough definition.

[Tanya]

big daddy Uncle Sam thinks it is God sometimes

[Tanya]

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 a good or service to one person without it thereby being available for others to enjoy
Non-rivalry where the consumption of a good or service by one person will not prevent others from enjoying it
Examples: Street lighting / Lighthouse Protection, Police services, Air defence systems, Roads / motorways, Terrestrial television, Flood defence systems, Public parks & beaches

Because of their nature the private sector is unlikely to be willing and able to provide public goods. The government therefore provides them for collective consumption and finances them through general taxation.

Merit Goods

Merit Goods are those goods and services that the government feels that people left to themselves will under-consume and which therefore ought to be subsidised or provided free at the point of use.

Both the public and private sector of the economy can provide merit goods & services. Consumption of merit goods is thought to generate positive externality effects where the social benefit from consumption exceeds the private benefit.

Examples: Health services, Education, Work Training, Public Libraries, Citizen's Advice, Inoculations

Monopoly

Few modern markets meet the stringent conditions required for a perfectly competitive market. The existence of monopoly power is often thought to create the potential for market failure and a need for intervention to correct for some of the welfare consequences of monopoly power.

The classical economic case against monopoly is that

Price is higher and output is lower under monopoly than in a competitive market
This causes a net economic welfare loss of both consumer and producer surplus
Price > marginal cost - leading to allocative inefficiency and a pareto sub-optimal equilibrium.
Rent seeking behaviour by the monopolist might add to the standard costs of monopoly. This includes high (possibly excessive) amounts of spending on persuasive advertising and marketing.
Libenstein's X-inefficiency may also result if the monopolist allows cost efficiency to drop. An upward drift in costs because of a lack of effective competition in the market-place can lead to consumers facing higher prices and a reduction in their real standard of living