Market Failure Case Study

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1. Market failure is brought about when a market does not bring about economic efficiency. This means that resources are not being allocated well within the market. One of the results of this happening is a loss of economic and social welfare for all of those involved. Public goods can lead to market failure as the market cannot provide these goods for themselves as no-one is willing to pay for them, yet they are essential to society, a good example of a public good would be street lighting. Another problem with these public goods is their non-excludability, meaning that you can’t exclude certain people from using the good. Yet another problem with public goods is that they are non-diminishable. This non-diminishing supply means that there is no rivalry in the market supply, as the stock of a public good does not diminish with use. Consumers do not need to compete with each other to gain access to this supply. If we look farther into the street lighting example, this means that the “customers” receive the same amount of light by passing under a street light, which has no effect on the supply of lighting that is available. Consumers are forced to consume these public goods, customers can’t tell the street lights to stop supplying light. These characteristics of the public good deter potential suppliers as it would be impossible to charge users at the time of use, retracting from revenue. Since suppliers would not be able to generate any revenue or profit, there is no real market in this sector, as profit plays a large part in being an incentive, and with no incentive, entry into the market is deterred which results in a missing market. To remedy this, the government can take control over the planning and funding of the operation o... ... middle of paper ... ...nd energy much more efficiently. One named program is “WRAP” This involves the idea that waste is “actually stuff with value” and is set up to create and increase a market for recycled goods. “Working with the industry and others to implement the resource security action plan” The security plan that has been mentioned was “developed in response to private sector concerns about the availability of some raw materials”. This plan details how the government recognizes this and provides a framework for business’ to act based upon what needs to be done and sets out to address the identified resource risks and also plans to build on the developing partnership between governments and business’ to address resource concerns.

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