The Major Causes Of Market Failure?

There are many factors that lead the market to failure in this global. Market failure occurs when there is an inefficient allocation of resources in a free market. Market failure can occur due to a variety of reasons, such as monopoly, negative externalities and public goods. Market failure is hard to avoid since the market is too big and hard to control. A market failure is something that is inherent to the market that causes the market equilibrium allocation to be inefficient. I will be explaining few main causes of market failure based on the information gathered and some of my personal opinion. There are some factors cause market failures which are positive and negative externality, merit goods and demerit goods, monopoly power, agriculture, inequality, public goods, common property resources and factor immobility.

Market failure happens when a market fails to manage its resources efficiently due to the breakdown of price mechanism caused by externality or market power. An externality occurs when a third party is affected by the decisions and actions of other. There are 2 types of externalities which is positive externalities and negative externalities. As an example, a mother bought a ceiling fan will bring benefit to other

Monopoly power occurs when a firm controls the market and can set higher prices. A pure monopoly is the only seller of a product which means the company has the 100% of market share. As an example, Tenaga National Berhad is the only electric supply in the whole country. Firms with monopoly power can set price higher than in a competitive market because consumer must purchases goods or services from the firm. In my opinion, the negative effect for this monopoly power is that the firms might have chance to set a very high price to consumer if the products or services is a must in human’s daily life such as electricity supply and water supply. This is just unfair to every