Market Failure

International Education College

Shanghai University of Finance and Economics

Economics: Marketing Failure

Name: JI Qiannan

Student ID: 2012665070

Class: International Trade1

Submission Date: Nov.-21, 2013

Introduction

Market failure occurs when resources are not allocated effectively or efficiently. This text is to discuss and explain four main forms of the term “market failure” and analyze the role the government plays through specific examples in section one. And in section two, a UK government’s policy on environment is introduced and explained.

Body

“Market Failure is an economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This is a direct result of a lack of certain economically ideal factors, which prevents equilibrium”.(SQA, 2013, P184)

This situation occurs when resources are not allocated effectively or efficiently. This can take a number of forms and appear in a variety of situations, and it is often viewed as something that needs to be corrected through intervention, usually on the part of the government, when it appears in the real world.

A public good is a product that one individual can consume without reducing its availability to another individual and from which no one is excluded. The inability of the market to provide public goods is a failure because nobody would pay for the goods though they are essential to society. (David, F, 1986.)

A good example is the roads. Nobody can stop anyone from benefiting from walking or driving on a road. Equally, when one benefits from using the road, he does not diminish the benefit of others. And if a certain neighborhood requires its residents to pay for the construction of a new road or for restoration of a broken one, nobody will pay. So, the governments have to spend the fee to repair a broken road or to build a new one when necessary. Therefore, the government will need to intervene by providing public goods out of general taxation.

Merit goods are goods or services that the government believes are beneficial to society. They are also things that are 'good' for you, but unlike public goods they can be provided privately. “The problem is that if they are provided solely by the private sector then they tend to be under-consumed, so, again, the government has to step in to correct the market failure.” (GCSE, 2013)

For example, a free public library is