Markets are fine institutions when all of the conditions for their efficient operation are in place. In Welfare economics and externalities we explored the meaning of efficient resource allocation, by developing the concepts of consumer and producer surpluses. But, while we have emphasized the benefits of efficient resource allocation in a market economy, there are many situations where markets deliver inefficient outcomes. Several problems beset the operation of markets. The principal sources of market failure are: externalities, public goods, asymmetric information, and the concentration of power. In addition markets may produce outcomes that are unfavourable to certain groups – perhaps those on low incomes. The circumstances described here lead to what is termed market failure.
Market failure defines outcomes in which the
allocation of resources is not efficient.
- 1668 reads
