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Economics- market failure

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Introduction

´╗┐ECONOMICS OUTCOME 3 Eleanor Carrol 0402314 A market failure "occurs when there is an inefficient allocation of resources in a free market" (Economic Help) When the market fails for whatever reason then the government steps in and attempts to rectify it. I would specifically like to talk about four areas, public goods, merit goods, externalities and imperfect competition. Public goods are goods which do not reduce the consumption for others. In a pure free market economy, goods and services would have to be bought and paid for an individual basis, nothing would be free. This could cause major issues regarding health and education and how much defence would be provided if it was left to the free market? If public goods were left to the market then there would be a market failure because of the free rider problem. A free rider receives the same benefits as others regarding public goods but does not pay for it. Merit goods include health, pensions and education and in the UK these are provided by the government as most people do not think ahead and only realise their importance when needed. ...read more.

Middle

profits even if it means keeping production low to allow demand to be greater that supply. This of course is all detrimental to society and consumer?s ultimately losing out. The government try to limit the detrimental effects by using fiscal policy to control the monopolies. There is a monopoly Commissions Board which monitor the behaviour of the monopolies and through taxes and budgeting regulate quotas, licenses etc. to try and keep them under control. Overall the government try and tackle these market failures by implementing laws, bans, taxes and persuasion tactics to try to reduce consumption through campaigning be that lobbying, advertising (infomercials) and awareness programs. One particular area the government has to be heavily involved in, is environmental issues. "The new coalition government has agreed on their environmental policies for the next parliament" (The Ecologist) The government has agreed on policies to change many ways the current environmental policy is carried out. The area is vast and covers a huge and diverse array of challenges. The government has agreed a strategy to link environmental policy with innovation to reduce detrimental environmental impact whilst trying to keep a balance for economic and social factors. ...read more.

Conclusion

The policy tools used which include environmental taxes, trading systems and voluntary agreements and participation present the government with barriers as not everyone can participate or want to participate. Experts have concerns over how little research has been carried out on some of the policies and are unconvinced of the efficiency and effectiveness of some of them. Others disagree about how policies are to implemented and feel that there will be a detrimental effect on competition. According to Tony Grayling of the Institute of Public Policy Research Renewable Energy, "the government is way off target" (The Guardian 2004) Dr Jeremy Leggett CEO of environmental group Solar Energy argues that ?there is a huge gap in what the government are saying and what the policies are actually doing". (Alok Jah the Guardian 2007) Penny Shepherd CEO of UKSIF specialising in green investments along with other business leaders, investors and campaigners believes David Cameron's dramatic promise to lead the greenest ever government has been followed by u-turns and delayed policies and has delivered a thumbs down to the governments record on environmental issues. (F. Harvey & D Carrington The Guardian 2011) If we are to believe these experts which have spanned 2004 through 2011, then there appears to be little hope for the government to have their environmental policies hailed a success. ...read more.

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