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Market Failure

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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.

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