Question

public finance

Why (or under what circumstances) does a market fail? Briefly list the reasons and explain each one in detail.

Answer 1

Market failure and their reasons.:-

Market failure is a situation in which the allocation of good and services is not efficient. Efficiency in resources allocation implies what is desired by the society is produced and market at a price that reflect the cost of their production. In case of market failure what is desirable for the societies viewpoint is not produced or the concerned goods are are underpriced or over produced. This is why market failure is interpreted as a case of misallocation of resources. Monopoly, inequality, factor mobility, agriculture, information failure, principal agent problem, moral hazard, positive externalities, negative externalities, public goods are the type of market failures.

Market failure occur when individuals acting in in rational self interest produce a less than optimal or economically inefficient outcome. It can also ok yeah in explicit market where goods and services are bought and sold outright, which we think of a typical markets. market failure can also occur in implicit markets as favours and special treatment are exchanged, such as Elections are the legislative process. Market failure can be solved using private market solution government imposed solution are voluntary collective actions.