• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Market Failure

Extracts from this document...


Student no 2302843 Market Failure This essay aims to give reasons why markets fail in various illustrations like Healthcare, Education and Housing and how governments could intervene to reduce this occurrence and failure. Market failure relates to a condition, in which a market does not efficiently allocate resources to achieve the greatest possible consumer satisfaction. Certain ignorance exists in all markets causing prices and supplies to differ from what they would be the consumer had the complete information. These disparities can be very large, such as paying too much for something, or having to sell something for much less than the original price and therefore making a huge loss. Another important cause of market failure lies in the destabilizing effect of "perverse" expectations, which means, demand going up and supply going down, creating skyrocket market prices. The four main market failures are public goods, market control, externality, and imperfect information. (Robert Heilbroner and Lester Thurow 1994:184-85). HEALTHCARE: Market failures in health care relates with issues such as the rise of an ageing population, which have increased healthcare spending. In addition to the rapid rises in healthcare prices, this have led for a need for healthcare reform; health is an essential element in peoples well-being, therefore an average persons ill health is often irregular and the causes varied. ...read more.


Health care has certain characteristics, which in general mean that it will not be allocated efficiently by a market system; these include uncertainty of demand, imperfect consumer information leading to monopoly and externalities. (Julian Le Grand, Carol Propper and Ray Robinson 1992:42-47,49-55, 62-63). EDUCATION: There are various potential causes of market failure in education, resulting in suboptimal consumption; education and training present external benefits. Imperfections in the capital market make it harder to get access to finance investment in education. Evidence suggests that government intervention is necessary on the justification of vertical or horizontal equity. For example, government provision of education or regulation, in a minimum school-leaving age, could be one way of redistributing income from the rich to the poor. It may also help to improve equality of opportunity across the population. Mainly when there are social benefits in the educational system, this creates positive externalities and consequently, the market leads to underinvestment. Government action may be justified to internalise the externalities, which means improving the incentives, in Investment, Education, and Training. It is certainly true that compulsory schooling helps young people to enter more effectively in the labour market. ...read more.


Most of the housing will be sub-standard, with low-income families living at high densities in over crowded buildings, which are at times, not fit to occupy and are subject to anti social behaviour. Often the housing problems arise because families have low incomes to buy or rent decent housing. There are other imperfections in the housing market, which prevents it from functioning efficiently. Inadequate incomes lead to inequity, whereas imperfections result in inefficiency. The distinction between these two explanations is of some importance for housing policy. The view that housing problems arise because some families have inadequate incomes, suggests the problems could be tackled most effectively by supplementing the purchasing power of these families. According to this Market-Imperfections view, no other specific intervention in the housing market is required. The Market-Imperfections view, alternatively, suggests that specific polices aimed at removing the imperfections will be necessary. (Julian Le Grand and Carol Propper 1992:91-98,106). The above examples show that there must be imperfect information if the markets are to operate efficiently. Markets must be complete meaning that all goods must be provided for everyone, without government intervention in healthcare the system would be more efficient to the rich instead of for the overall society, this is also possible in education and housing, in which there could be major disparities between choice amongst the rich and poor. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. What is Market Failure?

    Labour is often geographically and occupationally immobile. This can lead to unemployment and high wages for those in sectors or rising demand. In the meantime other changes will occur. Thus the economy is in a continuous state of disequilibria and the long run never comes. Imperfect Information and Inequality and Market Power It is assumed under perfect competition that consumers have perfect knowledge about prices and products.

  2. Case Study: The Home Depot

    Chapter 3: Strategic forces. What are the strategic factors facing Home Depot? The chapter "Strategic forces" will summarise the strategic factors of a company by combining the external factors of the EFAS and the internal factors from the IFAS. The SFAS is a powerful analytical tool for the strategic analysis of a company.

  1. Citigroup has successfully faced the challenges of the 19th and 20th centuries and has ...

    2.1.3 Knowing the customers and managing their wealth Cetron and Davies (The Futurist 2003 Jan-Feb, P. 30) state, "Information is the primary commodity of more and more industries". Financial Advising using Citigroup Wealth Planning has been a success especially in developed economies.

  2. Mexico’s Financial Crisis.

    There was the occurrence of a lot of short-term borrowing and long term lending done by the financial institutions. The Mexican banking system was unmistakably worsening from 1992 period onwards this was however not a particular concern of the central bank.

  1. This report will establish the opportunities and threats presented to Sony by the EU ...

    It really is a small country so possibly if Sony is thinking of placing a site in this country it maybe restricted but as I have established, Sony's products will make favourable sales in Luxembourg because the consumers here have more spending power than the rest of the EU countries.

  2. The Housing Market

    Table 1) The prices of housing and the price index in Greater London and the UK Q1 1993 LONDON UK =100 � INDEX � INDEX Q4 1973 12848 19.2 9767 19.5 Q4 1974 13223 19.8 10208 20.4 Q4 1975 14351 21.4 11288 22.5 Q4 1976 15196 22.7 12209 24.4 Q4

  1. Chinese car market overview. Citroen case study

    For these benefits to be realised fully, it is essential that China implements its terms of accession in a timely and comprehensive manner; the monitoring of China's WTO compliance will be a major EU priority in the years to come.

  2. What is market failure?

    If you get a good education, there are obvious private benefits; better career prospects and higher future earnings for instance. But there are external benefits as well. The obvious economic one is that a better-educated workforce is a more productive and efficient one, but there is also the fact that well educated people are less likely to resort to crime.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work