LovesTheTeam.com

Market failures result fromImperfections of market institutions and instruments. One of the main points is that a perfect market economy is not able to solve social and economic issues that are very important for society. That is, a market that works autonomously will simply not take care of ordinary citizens, as it will not have an incentive for this.

Government intervention

This is where state intervention is needed. If trade relations do not allow rational distribution of funds among citizens, it is necessary to create conditions for this. For example, free education. If the market exists autonomously, people can not provide knowledge, since it is not profitable to train all at once. It is better to teach only those who have money to read and write. It can be concluded that market failures are peculiar obstacles that prevent the society from achieving efficiency. As a rule, there are four main and several additional failures. These are externalities, public goods, monopoly and asymmetric information.

Main market failures

Under external effects understand everything that is directlyNot related to the economy. The most striking example is the chemical pollution of water bodies. If the state did not create laws to protect the environment, entrepreneurs would have long been able to destroy entire flora and fauna. There is no sense in building cleaning facilities, spending money, if everything can be done and so. Environmental laws set certain standards, exceeding which threatens a huge fine. Public goods are all that society needs, but it is not someone's private property. For example, roads. People need conditions for transportation. If everyone ran the market, high-quality roads would only be on the way to the enterprise, and in the rest of the world there would be ruin. The same goes for education, medicine, police and much more. Monopolies pose a threat to most of society. Imagine that you can only buy bread from one person. At the same time, he can dispose of his price and quality as he wants. For example, put a price of 1000 rubles. for a roll, and the quality is terrible. Even if you wanted to buy another bread, you would not have succeeded. The state prohibits the operation of such enterprises. The last point is the asymmetry of information. In simple terms, these are the conditions in which the seller knows more about the product than the buyer. As a result, there is a negative dynamics. For example, a buyer can buy a very poor quality product because he does not know the exact characteristics. The state develops GOSTs and forces manufacturers to specify all the necessary information.