Question

Why would market not correct each failure on its own?

Answer 1

The market is not always self correcting, the classical economics of the opinion that in a free market economy there will be always equilibrium in the economy. They are of the opinion that what ever is produced in the economy will be automatically demanded in the economy, that is supply creates it's own demand in the economy. But in the 1930's all the findings of classical economists is disprooved, it was the Great Depression, there were large rate of unemployment in the economy. One thing is to remember is that is the economy is not always be stable there is business cycles in it and also there political distortions all of thsese will shake the economy. So the government intervention is needed for correecting the market failure in the economy. In the 1930's keynesian economics emerged as a part of these, they advocated for the government intervention in the economy. The prices and wages are in the economy always cannot be flexible, they may also get sticky.