Government Market Failure

693 Words2 Pages

Government Role in Market Failure
Jarrod Owens
Saint Leo University

Government Role in Market Failure
The government has a key role to play in correcting market failures. A market is said to be working well when economic efficiency is being achieved. However, this is not often the case as markets sometimes fail to achieve economic efficiency that is characterized by market competitiveness, free flow of resources and availability of accurate information (Tewar, 2003). In other words, a market failure occurs whenever the resources are not efficiently allocated in a free market. This is usually detrimental since it impacts negatively on the citizens. As such, the government is expected to intervene by correctly the market failures. This paper …show more content…

However, the government has a responsibility to ensure that anomalies in the market are corrected properly and promptly for the benefit of the economy and citizens. As earlier stated, a market failure occurs where resources are not efficiently allocated. Market failures are caused by a number of factors. Firstly, market failure is caused by both negative and positive externalities (Salanié, 2000). Secondly, market failures are triggered by environmental concerns, such as global warming. Thirdly, lack of public goods, such as enough hospitals and schools is the other common cause of market failure. Additionally, market failures can result from underproduction of merit goods, overprovision of demerit goods, information asymmetry and abuse of monopoly power. The government has a responsibility to intervene in the case of market failure with the intervention measures being taken depend on the cause of the market …show more content…

In such a situation, the government has to correct the market failure by promoting the consumption of those goods (Salanié, 2000). For instance, where there could be under consumption in the education sector where people fail to attend schools because of the high cost of education, the government has a duty to intervene by subsidizing education. Subsidizing education ensures that the education becomes cheaper to the public including the poor, thereby enabling people to attend schools. The same applies to the transport in which the government can correct market failure caused by under consumption of public means of transport by subsidizing buses and trains.
Abuse of monopoly power is regarded as one of the causes of market failures. Monopoly causes market failures because it allows companies to hike prices at free will at the expense of the consumer (Winston, 2007). To minimize the abuse of monopoly power, the government can intervene by blocking mergers. In this respect, the Competition Commission has to move with speed to block any merger from taking place in an

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