Question

Hello i am studying for an Economics of Public Policy exam in the morning and wondering if there was anyone who would be able to give me an essay type answer (roughly 2 pages) to cover the following question:

Discuss two types of market failures that can result in the inefficient market allocation of goods and services. What issues can arise from government intervention to improve efficiency in the presence of market failures.

Answer 1

Markets are created to fulfill the demands of the consumers. Today the concept of market is not limited to a particular place due to presence of net-based selling and purchasing. But sometimes market may not be able to provide the consumers with the type of goods they want. As market is meant for social and this is the reason that government intervene in this process for social welfare Market failure is a condition when resources are not fully utilised ultimatey it is against the interests of both seller and buyer.

There are many cases where market failures exists. First case will be in the case of monopoly power. As there is no competition in case of monopoly, market may not be able to check the autocracy of the monopoly leader. So market fails to check the inappropriate ways of monopoly leader in order to make profits.

Second case can be seen in case of De-merit goods where market is not able to control the manufacture and sale of products like alcohol cigarette. These goods are against the social welfare of human beings

As far as government intervention is concerned, if government started imposing taxes on goods like alcohol or cigarette then it may be beneficial. They may increase prices of those goods which are harmful for human beings. It helps to change the behaviour of consumers.

As far as monopoly is concerned, a check on the price strategy should be made. As there is no competition it is not good to charge arbitrary prices If the goods is in the use of the purchasers then at least initiative can be made to lower the cost of production by government effort.

The government can also take the responsibility of monopoly in their hands to promote social welfare. Price check should be made in case of private monopolies.

Example:regulatirt measures were taken in case of railways in earlier time.

But those who are addicted to alcoholic products continue to purchase in spite of price rise. This creates a positive factor for the firms engaged in cigarette or alcohol production in spite of government intervention  

In spite of price check,monopoly continues to snatch consumer surplus from the public.

So efforts should be made from consumers side apart from the government efforts then only effective results can be seen