What Is Market Failure - 1575 Words

What is market failure? (3 Marks) â€Å"Market failure occurs when resources are not allocated efficiently - in other words total economic surplus is not being maximised† (Reference 1). Market failure is when the market is not working at equilibrium which is also known as total surplus or market efficiency. Market failure can happen when the Government impose a tax, price ceiling, price floor or a quota, this then causes price the rise of fall, which means total surplus will not be reached. The diagram attached shows a tax imposed on the banana market. This has caused prises to rise, and demand to fall. It has also caused a deadweight loss. A deadweight loss is an avoidable loss bared by both the consumer and producer, that reduces the total surplus. This means that the market is not producing at equilibrium, therefore it has caused market failure. In this case the 50c tax has caused the decrease in consumer and proud er surplus to be the same but in most cases it will be swayed one way. The tax is 50c but the price has only increased 25c, this means that the profit has decreased 25c per item as well. Another way the market can fail is when a firm or multiple firms have to much power in the market place. This is called a monopoly market or oligopoly if there are multiple firms. This causes market failure because it allows the firms to be price makers instead of price takers. This is because the consumers have no other option. Discovering Economics 3rd Edition | GregShow MoreRelatedThe Key Ideas Of Market Failure1387 Words   |  6 Pages EXECUTIVE SUMMARY The key ideas of market failure is the non-appearance of specific goods and services, competitive markets delivery the efficient quantity of all goods and services – that is the amount which best meets people’s requirements and favourites, given scarce resources. Market failure refers definitely to the causes of the failure, which is problems with the techniques through which the market works, not the results of the failure to deliver a certain outcome. The public sectorRead MoreMarket Failure And The Implications For Public Policy1653 Words   |  7 Pagesthe concept of Market Failure and the implications for Public Policy, the correlation, between the two is directly related to government intervention on market efficiency. Market Failure is discussed in the context of Pareto efficiency in the Free Market. Certain conditions must be met or Market Failures are inevitable and the government must intervene to correct the market. 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