Question

Provide a brief explanation of various perspectives of market failures with regard to the environment.

Answer 1

Market failure occurs when a transaction in an economy is not fully efficient. That means the cost and benefits incured out of that transaction go beyond shoulders of the buyer and the seller involved in it.

With regard to environment,their are so many market failure occurs due to the presence of positive and next negative externalities prevailing in the environment.

Now let us take the case of positive externality prevails in an environment.Positive externality causes inefficiency in market or market failure. For instance  take the case of house boat in a beautiful lake. Houseboat is valued because of the presence of the environment in and around the lake.

That is there exist the presence of positive externalities in the form of beautiful environment in and around the lake. But the buyer and the seller of house boat is not bothered about the environment and not bearing the cost and benefit incurred for the environment while purchasing the service of the houseboat and not paying anything as the price of the beautiful environment . So the market fails here to value the beautiful environment in and around the lake.

Now let us take the case of negative externality. Negative externality also causes inefficiency in market or market failure with regard to environment .

For instance take the case of an Industrial Area which pollutes the environment. Pollution causes diseases like asthma to the people of surrounding industrial area. But no industry in that area are willing  to pay the hospital bill of that  asthma patients arising out of environmental pollution created by the industries  of that city.