Question

What are the causes of market failure in competitive markets? Using Microsoft Excel or PowerPoint, construct a graphical example of market failure.This should be embedded into a word document. (PLEASE ANSWER THIS QUESTION WITH AN ORIGINAL ANSWER. I HAVE RECEIVED ANSWERS FROM EXPERTS THAT HAVE JUST REPOSTED SOMEONE ELESE'S ANSWER. THIS IS NOT RIGHT. ALSO, PLEASE CONSTRUCT A GRAPH FOR EACH CAUSE AND PROVIDE AN EXPLANATION ABOUT IT. THANK YOU

Answer 1

Market failure takes place due to goods and services not being allocated efficiently .Causes of market failure include -

Positive and negative externalities-Externality refers to the effect created on the third party due to the consumption or production of a good or service.Positive externality means positive effect to the society created by the consumption or production of a good or service.Eg ,education may provide positive effect to the society as a whole .A negative externality may effect the third party negatively Eg .Smoking affects non smokers even though they are not engaged in smoking.In the graph no 1, S1 shows marginal private cost , MEC is marginal external cost,and shows negative impact on third parties.S2 shows full cost borne by the society.Graph 2 MPB is marginal private benefit and the demand curve D1=MPB.MEB is the marginal external benefit and shows positive impact of the economic activity on enjoyed by the third party.

Lack of public goods and less production of merit goods --Public goods are goods which are non rivalrous and non excludable . Eg street light.Public goods create market failure if people decide to use it and do not pay for it.Merit goods are private goods that is considered by the society to be underconsumed with positve externality .It generates benefit to the society. Eg education.health care etc In the diagram 3,,Good education brings welfare to thesociety .Here marginal social benefit is greater than marginal private benefit.In diagram 4,E is the point where marginal social benefit =marginal social cost.

Environmental cause-effects on environment and maintaining sustainable development is an important concern .

More provision of demerit goods -Demerit goods like  cigarettes , alcohol are consumed more with negative externality.

Imperfect markets control output in order to maximise profit . This is a corruption of monopoly.  

Graphical eg of market failure-National defense is an example of public good which creates market failure because each citizen gets same kind of benefit  regardless of how much they pay.Diagram4 is eg for  public good .