• 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. The Housing Market

    101.8 Q4 1994 70121 104.7 52114 104.0 Q4 1995 74161 110.8 50930 101.6 Q4 1996 80433 120.1 55169 110.1 Q4 1997 94055 140.5 61830 123.3 Q4 1998 107464 160.5 66313 132.3 Q4 1999 130598 195.1 74638 148.9 Q4 2000 147704 220.6 81628 162.8 Table 2)

  2. Chinese car market overview. Citroen case study

    20-25% of the potential buyers prefer to buy locally made cars, when the price is equivalent or lower than the imported model, 40-47% prefer locally made cars, and when the price is less than 80% of the same model of imported cars, the percentage increases to 55.5-87%.So, to conclude, Chinese

  1. What is market failure?

    If you remember from above, education is an example of a good that has huge external benefits for society, so if it were left to the free market, output (which in this case means the number of people educated) would be lower than the socially optimal level.

  2. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    This also resulted in increased default rates, particularly in 'sunset' industries and young start-up enterprises in novel sectors, which would be most likely financed using high-yielding debt. Thus, the increased volatility in the market during this period meant that the interest rates on new bond finance for speculative grade issuers

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

    Petersburg, Russia are just a few examples. Citigroup also started a separate Consumer Finance group called CitiFinancial to address the demands for cars, houses and luxury goods especially in developing economies. This strategic move has been a bit hit in these countries as people become more and more affluent.

  2. Case Study: The Home Depot

    From the reports analyses and documents that we read it seams as if Home Depot has done less in the field of innovation and R&D then other competitors, so we would advise Home Depot to invest in innovations other then IT, because they seem to be pretty well up-to-level in the IT services department.

  1. Understand the reasoning and rational of the "Keiretsu" families.

    However, the keiretsu supplier then marks up the price of the supplies sold to consumers in the captive market. To illustrate this part of the process, I will use the controversial issue of auto parts. The Toyota motor company is able to purchase auto parts from members of the Toyota Keiretsu at below market prices.

  2. What are the sources of market failure?

    They are sometimes called spillovers, neighborhood effects, external costs or benefits, or external economies of diseconomies. Thus externalities may be beneficial or detrimental to the well being of those affected. They are not reflected in free market prices. Positive externalities are the uncompensated benefits that are received by individuals who

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