Market Failure And The Implications For Public Policy

When discussing the concept of Market Failure and the implications for Public Policy, the correlation, between the two is directly related to government intervention on market efficiency. Market Failure is discussed in the context of Pareto efficiency in the Free Market. Certain conditions must be met or Market Failures are inevitable and the government must intervene to correct the market. The first fundamental theorem of welfare economics asserts that under certain conditions which makes markets not Pareto efficient results in Market Failure (Stiglitz, 2000, p. 77). The conditions of market failure results when marginal cost (MC) does not equal marginal benefit (MB) and neither equals price (P), to reach equilibrium MC=MB=P and the market is Pareto efficient. The conditions under which there is not Pareto efficiency in the market and results in Market Failure are; failure of competition, public goods, externalities, incomplete markets, information failure, unemployment, inflation and disequilibrium (Aikins, 2015). If any of these conditions exist in the market, it provides the justification for government to address the failures through policies designed to reach Pareto efficiency. Pareto efficiency or Pareto optimal is defined as, to have resource allocation that have the property that no one can be made better off without someone being made worse off. Pareto efficiency in free markets incorporates involvement where Government is expected to protect citizens andShow MoreRelatedThe Kyoto Protocol Extension Is Worthwhile859 Words   |  4 Pagesinternational policy coordination by multilateral agreement is indispensable. This policy paper aims to discuss participation in the Kyoto Protocol Extension is worthwhile and what benefits and burdens await the nation taking part in the efforts towards emissions reduction. Analysis To begin with, several facts must be considered: (1) policy and economic implications, (2) cost-benefit analysis, and (3) global ethics. Policy and Economic Implications. The environment is a type of public good, and theRead MoreEvaluating The Theoretical Reasoning Of An Optimal Level Of Health1119 Words   |  5 Pagesindividuals would consume at the Hmax. Moreover, individuals also deviate from the optimal level H*. This essay will now evaluate the theoretical reasoning explaining this, as well as, comparing it to empirical findings and considering the policy implications of this. 2.1 Ageing Health depreciates overtime with age due to its stock variable nature. For this reason the older an individual becomes the more costly it is to maintain health at the maximum level or current level H*, as ÃŽ ³ grows continuouslyRead MorePreexisting Condition Insurance Plan Program1607 Words   |  7 PagesProgram and its effects on the healthcare and health insurance market as well as the Segway into the elimination of Pre-existing condition clauses for insurances as found in section 2704 of the public health service Act. The remainder of this paper is organized as follows: Section 1 discusses Why the policy was enacted, section 2 discusses the economic environment previous to the PCIPP, section 3 Evidence supporting a market failure in the insurance industry, section 4 discusses how the plan wasRead MoreWhy Water Should Be Treated As Human Right Or Not776 Words   |  4 Pageswhether water should be treated as human right or not. In the human rights discussion, the term â€Å" public good† is important because resources of this kind must be made accessible to everyone in sufficient quantity and quality (basic supply). Moreover, it is essential to human life and health. But according to the economic definition, this scarce resource does not meet all of the economic criteria of a public good (in which no one could be excluded from its consumption) (Arce, C., Maume, A. 2005). TraditionallyRead MoreUsing the Data and Your Knowledge of Economics Assess the Arguments for and Against the Government Intervening in the Uk Electricity Industry. (25 Marks)1185 Words   |  5 PagesUK energy market despite the existence of some smaller firms who are mainly involve in the retail aspect of the market (extract A). The market concentration of these firms and the significant profit margins that they enjoy, as referred to in extract B, would suggest that there exists a strong argument in favour of government intervention in order to protect consumer interest. However any government intervention must be based on sound information so as not to further disrupt the market and potentiallyRead MoreIntellectual Property Rights1347 Words   |  6 Pagesis through utility patents because patent laws provide strong protection to the patent holder. Another form of protection for biotechnology inventions is contractual agreements. Contrary to patents, a contractual agreement can last forever but the public will be unable to access an invention if it is never disclosed (ibid, 2001). Plant breeders use hybrid varieties where effective legal Intellectual Property Protection systems are non-existent. Hybridization is an effective protection system whichRead MoreThe Economic Policy Of General And The Monetary Policy1590 Words   |  7 PagesAssignment – Week 1 It is clear that the economic policy in general and the monetary policy in particular should be concerned with the overall economic well-being. In this paper we propose to discuss this core topic. We will provide an overall picture of the functioning mechanism. In this regard, the discussion will develop around the governmental policies and of FED, and their scope on the free market. The argumentation will refer to the notion of common good and will try to establish if the measuresRead MoreGeopolitical. Collective Goods Problem1749 Words   |  7 PagesWhat theory best solves the collective goods problem? Provide an example to support the argument. The issue of collective good has to be think in terms of international policies Collective goods are, in theory, goods or services which represent two characteristics. The first one, called non-rivalry, means that the consumption of the good by an actor does not prevent its consumption by another one. The second characteristic, the exclusion, means that nobody is excluded from the consumption ofRead MoreThe Issues And Risks Facing Sel1202 Words   |  5 PagesAfter reviewing the current situations, I have identified the following issues and risks facing SEL. An overview of the implications of the proposed IPO, and a brief analysis of the three accounting packages under consideration are also given in the memo. Weaknesses in financial management SEL has been weak in financial management. Both of you were not actively involved in it. Nor did SEL have sufficient qualified accounting staff to undertake these critical responsibilities. For example, thereRead MoreThe Fair Value Model1477 Words   |  6 Pagescompensation costs. Through the use of the fair value model, the company is able to have a transparent structure that enhances the commitment of the stakeholders and workers. Therefore, the principles emphasize the pro-forma values and integration of various market performances to reflect in the final financial report. Compliance with the regulations gives the business a wide breadth of ideas that improve financial stability. Financial benefits and risks Dilution of ownership Based on the concept of stock appreciation