Economics: Sources Of Market Failure

Running head : ECONOMICS : SOURCES OF MARKET FAILURESEconomics : Sources of trade place Failures[Author][University]Economics : Sources of Market FailuresPerfect Competition and Competitive MarketIn for a presumptuousness economy to spend a penny best production level , it is vital for it to attain basic competitive market condition before aiming to produce optimal level of output . Competitive market , in scheme , gives the highest possible social benefit in a give economy and maximizes /minimizes the profit /costs of all the producers , which later on leads to the provision of cheaper and high quality products /services to the market . still , in to attain the state of competitive market , it moldiness first have a perfect competition breathing in the economy . Perfect competition means that thither must be a homogenous product in the economy , public of perfect and complete information exhaust market entry , more buyers and sellers , and individual buyers and sellers act separately (Cliff nones .com , 2008 . All of the above given criteria must be agreeable first before achieving the state of perfect competition . The sole(prenominal) problem with perfect competition is that it does not exist in reality due to various market failures like the existence of public good , externalities , imperfect information , and imperfect markets . This is the land why all of the economies across the globe operates in a suboptimal level of market condition since perfect competition is not attainable in reality , and so with perfect market conditionPublic GoodIn the event when private sector inefficiently provides a given service in the economy , the tendency of the government is to stones throw in and start producing the product where the private sector is inefficient (Cowen 2002 . Like for the case of providing lights on roadways for the benefit of those lot existing or passing along the streets .

It would be very effortful on the part of the private producers to terms the utility of all(prenominal) person being benefited from the provision of street light on their area The only way by which the private producers to perpetration those people being benefited by their street lights would be to affect their willingness to pay for such provision . Yet , the problem without delay on using the willingness to pay of consumers as the basis for determine their provision of street lights is that those person being benefited by the verbalize provision could understate his or her willingness to pay while another(prenominal) can free ride . With this failure of the private firms to price their product , the government steps in . The government would not use the willingness to pay method of set their provision of street light to their constituents rather they will use shadow pricing and incorporate it in making new tax musical arrangement . In other words , the government will employ new tax rollion in to collect the stipend of consumers for the provision of street lights by force and even to those people not benefited by the said provision . Private firms cannot collect taxes on the consumers and this makes them more inefficient than the government...If you want to get a full essay, order it on our website: Ordercustompaper.com

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