Market failure- economics

NEWS PAPER

Monday, 9th January 2023

Made by Carolina Cristea

Market Failure

REAL LIFE EXAMPLE SONGBIRD ON LINUX Songbird, an open source software alternative to iTunes, was incredibly popular among the Linux community. Then one day in 2010, the company stopped its Linux support, disappointing loads of users.

the inefficient allocation of resources in acts of self-interest os individuals

COMPLETE MARKET FAILURE- when a market fails to supply any of a good demanded, creating a missing market

PARTIAL MARKET FAILURE- when a market for a good exists but there is overproduction or unddrconsumption

MISSING MARKET A market where the market mechanism fails to supply any of a good

Underprovision of public goods

This is an example of complete market failure, which means that the market and private firms would not provide public goods to consumers. Public goods are non-excludable and non-rivalrous meaning that the consumption of it won't limitate the consumption for another person. Some examples of public goods are parks, beaches, lighthouses, national defense, streetlamps, lighthouses and clean air. As no one apart from the government usually providing these public goods, the costs for maintennace are often covered through indirect taxation.

NEGTAIVE EXTERNALITY

OVERPRODUCTION

Information gaps

We are all born ignorant, but one must work hard to remain stupid.

This links to marginal social costs to both society and individuals. Let's take as an exmaple elf bars or vapes. This electronic device heats up different flavouful liquids for you to inhale. It has emerged in the last few years and now is very popular in contrast with cigarretes. They are said to be less harmful but there are plenty of chemicals that make those liquids and in many cases prove to be carginogens. This product is repeatedly advertised to younger audiences including teenagers as there are 'childish' designs to attract them. We don't know the effects of these devices as there hasn't been enough market reserch done on them, therefore we have the right to ask if they are actually a better alternative to traditional tobacco products.

There are two types of information gaps:1. Assymetric information- this is when one party knows or keeps hold of an information and it is not available to the another party, often causing consumers to not know if a product is worth the money or it is just deceitful marketing to make the consumer buy it to make a profit2. Imperfect information- this is when the buyers/sellers do not have enough knowledge to know fully the benefits or disadvantages of a good/service

MONOPOLIES

Monopoly is a situation where there is a single seller in the market. In conventional economic analysis, the monopoly case is taken as the polar opposite of perfect competition. By definition, the demand curve facing the monopolist is the industry demand curve which is downward sloping.

Example of a monopoly:Microsoft Microsoft is a Computer and software manufacturing Company. It holds more than 75% market share and is the tech space’s market leader and virtual monopolist.

How to tackle market failure?

Private market solutions: For example, asymmetrical information could be solved by intermediaries or ratings agencies such as Moody's and Standard & Poor's informing market participants about securities risk. Underwriters Laboratories LLC performs the same task for electronics. * What are the functions of intermediaries? They are legally appointed to impart information about a product to the customers on behalf of the manufacturer or producer, but they never take the ownership of the product sold.

Government-imposed solutions:Governments can also impose taxes and subsidies as possible solutions. Subsidies can help encourage behavior that can result in positive externalities. Meanwhile, taxation can help cut down negative behavior. For example, placing a tax on tobacco can increase the cost of consumption, therefore making it more expensive for people to smoke.