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 an Oil and gas exploration and production?

Answer 1

Reason for Market Failure

1.Market power: There are many assumptions of perfect competition which are not to be found in the real life.The situation of market failure leads to the emergence of imperfect competition where due to less output and higher prices,resources are mis-allocated.

2. Externalities: There are many situations in real life when costs and benefits, which are supposed to be paid by the third parties,are not paid by them,Such spill-over of costs or benefits are called externalities. Externaliyies can be of two types:(a) external diseconomy and (b) external economy.

3. Incomplete information: Theoretically, it is assumed that price determination and consumer behaiviour are based on the assumption that firms and households have the complete information Because of this,prices are not what they ought to be.In other words, a situation of market failure exists.

4. Presence of Public goods: A public goods is that which is non-rival and non-excludable.A good is a non-rival in consumption when its consumption by the person is not interfered by some other person. Those produced goods,from which people can not be excluded from availing of theirs benefits are called non-excludable goods.