Define Market Failure
In this essay I will address market failure and how it may have occurred in a country of my choice, as well as how they have tried to correct the issues.
Market Failure has many definitions, although I found that the one that best described it would have to be from the ‘Investopedia’. Of which it states that ‘in any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers’. This is due to the lack of certain economically factors that prevent equilibrium.
There are 4 main types of market failure:
1. Externalities occur when economic decisions create costs or benefits for people other than the decision taker: these are called the external costs and external benefits of that decision.
2. Monopoly power can lead to a higher price and lower output as compared to a perfectly competitive market structure.
3. Imperfection Information is where for example a firm may have data on their product which is not available to purchasers
4. Public goods’ is used to refer to goods/services or products which have particular characteristics of a type which makes it impractical for private markets to provide them.
The country I have chosen is the African country of Zambia. Zambia has an advancing free market economy which means that there is no exchange and interest rates as well as a fair pricing strategy. Within the free market there is little government intervention nonetheless when it comes to the protection of the environment and its stability, should the government be allowed to get involved?
Within Zambia the production on the land is extremely important for the stability of the country to remain the same. The production of agricultural goods, tourism etc all implicate incurring private costs and generate private benefits. Characteristically the market value of a good or service reflects these private fees and benefits. With the externalities there were additional negatives, this is due to the production and
Market Failure has many definitions, although I found that the one that best described it would have to be from the ‘Investopedia’. Of which it states that ‘in any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers’. This is due to the lack of certain economically factors that prevent equilibrium.
There are 4 main types of market failure:
1. Externalities occur when economic decisions create costs or benefits for people other than the decision taker: these are called the external costs and external benefits of that decision.
2. Monopoly power can lead to a higher price and lower output as compared to a perfectly competitive market structure.
3. Imperfection Information is where for example a firm may have data on their product which is not available to purchasers
4. Public goods’ is used to refer to goods/services or products which have particular characteristics of a type which makes it impractical for private markets to provide them.
The country I have chosen is the African country of Zambia. Zambia has an advancing free market economy which means that there is no exchange and interest rates as well as a fair pricing strategy. Within the free market there is little government intervention nonetheless when it comes to the protection of the environment and its stability, should the government be allowed to get involved?
Within Zambia the production on the land is extremely important for the stability of the country to remain the same. The production of agricultural goods, tourism etc all implicate incurring private costs and generate private benefits. Characteristically the market value of a good or service reflects these private fees and benefits. With the externalities there were additional negatives, this is due to the production and
References: Biz/ed (2001) Zambia, [online] Available at: http://www.bized.co.uk/virtual/dc/wildlife/theory/th3.htm [Accessed: 13th November 2011]. Economics Help (2011) Types of Market Failure, [online] Available at: http://www.economicshelp.org/marketfailure/index.html [Accessed: 13th November 2011]. Investopedia (2011) Market Failure , [online] Available at: http://www.investopedia.com/terms/m/marketfailure.asp#axzz1g9PTVZp7 [Accessed: 11th November 2011]. Kapek, M. (2011) Non performing loans affect agro-finance, The Post News Zambia, Tuesday 15th June 2010, p.15-18. Lewis, D. et al. (1990) African solutions to wildlife problems in Africa: Insights from a community-based project in Zambia, Unasylva, 1(161), p.1-4. The Encyclopedia of Earth (2011) Habitat Destruction, [online] Available at: http://www.eoearth.org/article/Causes_of_extinction?topic=58074 [Accessed: 13th November 2011].