Question

• The reason for the market failure
• The possible or potential effects of the failure on Fourevr’s operations (whether positive or negative)
• The role of government regulations/policy to correct each failure, and what effects those regulations might have on the company’s costs, revenues, and profits

How can market failures affect software development?

Answer 1

Market failure is the economic situation defined by the inefficient distribution of goods and services in the free market. Reason for market failure include positive and negative externalities, environmental concerns, lack of public goods, underprovison of merit goods, overprovision of demerit goods, and abuse of monopoly power. The market, will fail by not supplying the socially optimal amount of the good. The imbalance will cause allocative inefficiency, which means over or under consumption of goods, and this is really bad. Also competitive markets will lead to ineffient outcomes, and market prices do not exist or do not reflect the true value of the price. Hence market failure has a huge harmful effect on the market and economy.

The one role of government is to correct the problems of market failure related with public goods, external costs and benefits, and imperfect competition. The intervention of government to prevent market failure always has the power to move markets closer to efficient solutions and this in turn will reduce deadweight losses. Hence government plays a huge role in fixing the problems of market failure. These policies or regulations will also have effect on company's pricing, profits, etc. Sometimes the company may have to fix lower prices in order to fight market failure and also this may lead to less revenue or profits, but it will beneficial in the long run.

Software development refers to a set of computer science activities dedicated to the process of creating, designing and deploying and supporting software. Development won't be worthwhile, so software developers will not look for new developments. They cannot make enough benefits from these developments hence software developments may slow down.