Question

Describe the 4 causes of market failure. Why is it safe to assume that the government will continue to subsidize inoculations against diseases like whooping cough and small pox for young children?

Answer 1

Ans: Market failure- Market failure can be describe as a situation when customer demand and goods or services supplied in the market does not equal to each other therefore market fails and it require goverment intervention to put market back in to track.

Four causes of market failure are as follows:

1.Inefficiency:

Market may fail to use scarce or limited resources in more appropiate manner or most efficient way that create the situation of market failure.

2.Monopoly power:

Monopoly is other market failure as monopoly misuse its power due to absence of competitors price of goods are too high some times its supply also not efficient .

3.Insufficient information:

Market must consist high level of transparency and free flow of information where as it fails in the absence of availability of insufficient information.

4.Public goods:

Public goods are those goods that can be consumed bh all of the them and consumption of one will not prohibit the consumption of other.for example street light anyone can use it.Non paying consumer will not exculde to use it.where as private companies does not supply that goods and services which loss thier money and they does not make profit .It creates the problem of free rider-Free rider are those who uses services and goods free of cost.

*Assumption of that govt must subsidize against disease like whooping cough and small pox for young children because lower income group will not able to cure on private expenses they surely need govt support to stand and fight with these diseases as private company will not like to guve subsidies and they will defiantely charge thier cost by adding profit on it .They will not put their hand on something that does not give them profit.