Question

Market Failure

Barriers to Entry

Asymmetric Information

1. Write one paragraph describing the market failure that you were assigned (Barriers to entry, Asymmetric Information). Specifically include the following: (a) how it would distort supply and/or demand (note: it probably only affects supply or demand); (b) how it would affect the quantity of health care used (i.e., does the externality lead to there being too much or too little health care used?); and, how would it affect the price charged relative to what society would want (i.e., does the externality lead to the market price being higher or lower than the value society places on the health care?)
2. If you were the government, how would you intervene in the market to try to correct for the market failure (to bring the quantity used closer to the quantity that society wants, and bring the market price closer to the value that society as a whole places on it)?

Answer 1

MARKET MEANS A SPECIFIC PLACE FOR PURCHASING AND SELLING GOODS.

MARKET FAILURE MEANS AN ECONOMIC SITUATION WHERE THE IMPROPER DISTRIBUTION OF GOODS AND SERVICES CAN BE SEEN , IN A BROADER SENSE THE INDIVIDUAL RATIONAL BEHAVIOR DONOT LEAD TO RATIONAL OUTCOME. THERE MAINLY 4 REASONS FOR THE MARKET FAILURE :-

1. POSITIVE AND NEGATIVE EXTERNALITIES

2. LACK OF PUBLIC GOODS

3. ENVIRONMENTAL CONCERNS

4. ABUSE OF MONOPOLY POWER

EVEN THE MARKET FAILURE CAN BE SEEN BECAUSE OF THE BARRIERS TO ENTRY I.E THE DISCOURAGEMENT OF THE PEOPLE IN THE MARKET WITH SIMILAR PRODUCTS, MONOPOLY, COMPETITION, COST DISADVANTAGE ARE MAJOR SCREENED REASONS FOR THE MARKET FAILURE WHILE ON THE OTHER HAND THE ASYMMETRIC INFORMATION WHICH DESCRIBES THAT THE INVESTORS AND ISSUE OF PUBLIC OFFER ABOUT THE VALUE OF SECURITY. TO VOID THE MARKET FAILURE THE COMPANY WITH PUBIC OFFER WOULD ANNOUNCE ITS FIRMS VALUE THAT WAS VIVIDLY DESCRIBED BY THE BANKER.

A) MARKET FAILURE MAY CAUSE IN THE DECREASE OF THE DEMAND BECAUSE IF THE BARRIERS TO ENTRY IS PRESENT WITHIN THE MARKET THEN THE COMPANY NEED TO PROVIDE MONEY TO THE CONCERNED AUTHORITIES AS A FLOW FOR MAKING THE APPROVALS. LATER , THE COMPANY CANNOT MEET THE DEMANDS OF THE PUBLIC AS ITS CAPITAL IS EXHAUSTED FOR PROVIDING THE MONEY TO OTHERS, LEFT WITH NOTHING IN THERE HANDS.

B) HEALTH CARE IS THE PRIMARY THING FOR ANY PERSON , BUT IN CASE OF MARKET FAILURE IT SHOWS AN ADVERSE AFFECT I.E IN CASE THE EXTERNALITIES PLAY A ROLE IF IT IS A NEGATIVE EFFECT THE THAT WOULD BE GREAT DISASTER BECAUSE IT IS SITUATION WHERE THE PEOPLE WOULD BE UNDER NEGATIVE IMPACT OF WHY I NEED TO PAY A PRICE , IN A SINGLE WAY A SELFISH CONSUMERS AND SELFISH PRODUCERS.

YES WE CAN SAY THE EXTERNALITIES WOULD AFFECT THE PRICE OF HEALTH CARE THAT WE IMPOSED IN THE SOCIETY , BECAUSE THE MORE THE PRICE WHICH IS UNAFFORDABLE FOR THE DIFFERENT INCOME LEVEL PEOPLE, WHILE MANY DIES INFRONT OF US DUE TO THE INCOME CONDITIONS.

IF I WAS THE GOVERNMENT THEN I WOULD MAKE THE FOLLOWING DECISIONS TO CORRECT THE MARKET FAILURE:-

1. REMOVE THE UNFAIR PRACTICES IN MARKET.

2. BRINGING ANTI LAWS AGAINST MONOPOLY.

3. FIXING THE PRICES THAT WOULD BE AT FAIR COST (OR) PROVIDE SUBSIDY FOR MAKING THE PRODUCT TO THE COMPANIES.

4.MAKE SURE OF PROPER DISTRIBUTION OF GOODS.

5. INCREASE POSITIVE EXTERNALITY BEHAVIOR AMONG THE PUBLIC.

6. INCREASE THE RETURNS TO SCALE.