Market Failure: Reasons And Consequences

Market failure happens when the free market fails to efficiently allocate scarce resources. Market failure may take many forms. This report will examine the relationship between these four factors and the free marketplace.

Public goods are services and goods that are not available in the private sector. You can categorize public goods as either pure public goods, or quasi-public. Private sector does not provide any pure public goods. Market failures are a result of’missing market’. This is partially due partly to the free rider’ principle. In other words, people are free to access, use and enjoy public goods without needing to pay. The following two distinguishing characteristics of pure public good are: Non-rival: The amount of goods that can be consumed by one person is not reduced by the other’s consumption. Eg. BBC Terrestrial TV services

? Non-excludable means that it is not possible for one person to obtain a good/service without making it available for another. Profit-motivated businesses might decide to stop supplying these products (e.g lighthouse protection or defense systems).

Quasipublic goods can be goods that aren’t purely accessible to the public. Roads are an example. They may be rivals during peak times.

Merit goods refer to goods and services that have been deemed socially desirable. Merit goods include education, health, welfare, and public parks. Merit goods are not necessarily public goods. They could, and do, however, be provided on the market. However, they may not be in sufficient numbers to maximize social welfare. Markets tend to underprovide merit goods because:

? They have positive externalities

? Income distribution is not equal

? Consumers might not have complete information

? The future of consumers may not be known.

An externality refers to an effect on someone not directly connected to the original transaction. An externality occurs when a person does something that affects the well being of others, but doesn’t pay or receive any compensation. An externality is defined as one with a negative effect on a bystander. A positive externality has a beneficial effect that benefits the bystander.

Externalities that are positive include

? Learning

? Fragrance

? Parks

Negative externalities are:

? Contamination

? Anti-social behaviour

Imperfect competition can be described as a situation in which many sellers sell different goods but are not selling the same product. This refers to markets with a high impact on nature.

The real world completion is called impact competition. It is a common strategy that many sellers and industries follow to increase their profits. This market scenario allows the seller to influence the price to increase his profits. Sellers can make profits by selling non-identical goods in the marketplace. Sellers with losses can exit the market quickly if they make large profits.

There are 4 types of imperfect market.

? Monopoly (only 1 seller)

? Oligopoly (several sellers of goods)

? Monopolistic Competition (many sellers that are highly differentiated)

? Monopsony is where there is only one buyer for a product

Universal Credit is a government welfare policy. Universal Credit was created to replace 6 benefits: housing benefit, child tax credits, income support and income-based jobseekers assistance. Iain Duncan Smith, Work and Pensions secretary, presented the initial idea during the Conservative Party annual Conference in 2010. The intention was to complete the policy in two parliaments over the course of four years. Universal Credit was established to streamline the benefits system.

Universal Credit was included in the 2012 Welfare Reform Act. Universal Credit is a monthly payment. This payment includes the basic’standard amount’ and additional payments, which may be applicable depending upon the claimant’s particular circumstances. Universal credit requires that you wait seven days before receiving any money.

Universal credit has come under fire for its long waiting periods between the time you apply and receiving your first payment. According to the government, this is required for claims to be evaluated. People who depend on the government for their rent must pay it themselves during the time between applying and receiving benefits. This can cause them to fall into serious debt. According to the Labour Party, half of council tenants who receive universal credit are in arrears for their rent.

Opinion shows and newspapers regularly criticize Universal Credit. The long waiting period between applying and receiving payment is the reason. Research has shown that those who wait to receive payments end up in debt.


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    Hugo Ellis is a 27-year-old educational blogger. He has a love for writing and educating others about different topics. Hugo is a self-taught writer who has a passion for helping others achieve their goals.