What is market failure?
What is market failure? To understand what market failure is, we first need to look at markets working correctly. The assumption is that if markets are working freely with no imperfections, this will give the most efficient outcome, The main causes of market failure Once you understand what market failure is, we need to look at the various reasons why markets do fail. Below are listed the key reasons why markets fail: Externality This failure is due to a 'by-product' of a certain production process, or of consuming something, that affects a third party. This effect can be positive or negative. The wrong market structure This failure is due to the market structure not following the only truly efficient market structure (i.e. perfect competition) Public, merit and demerit goods This failure occurs as the goods being produced are of a nature that the market would under provide, over provide or even fail to provide, if the government did not intervene. Other ways in which markets fail There are numerous other reasons why markets fail and these are listed further down in this topic. Private costs, external costs and social costs With the example of the factory, we need to divide all the costs to society into private costs and external costs. The social cost of an activity is the total cost of that activity, both privately and externally. So: Social Cost =
Why might economic growth not always be a good thing?
Why might economic growth not always be a good thing? When a country undertakes the challenge of economic growth, it does it for a number of reasons, but possibly the most important of these is to satisfy its populace. After the Second World War, South Korea wanted to grow economically in order to escape their medieval agrarian lifestyles and to experience all of the trappings of consumerism. But instead what South Korea and many other developing economies find themselves bundled with is far from their idealistic dreams. Growth is not always something to be welcome for the vast majority of economically growing countries. Of the vast array of categorised evils that materialize from growth is the horrific pollution. The pollution we see today is endless. From the smallest microcosm to the entire earth, economic growth and waste is slowly choking everything around us. As members of an industrialised society the detrimental effects are all too apparent. And in general, the despoiling of the landscape and the pollution of air and water decrease man's ability to enjoy the "real" amenities of life, thus questioning the accepted opinion that materialism brings more to our daily lives than for example, the life of someone in a pristine and enjoyable natural environment. As I sit here writing this essay, in front of me lie vast swathes of land ripped wide open, and in their place,
