Entrepreneurship & Small Business
Entrepreneurship & Small Business
Market failure is often given as a justification for Government support of the SME sector. Discuss the various types of market failure, which are said to occur and, drawing on the literature, discuss whether they are valid justification for Government intervention.
The SME sector of an economy is the small to medium sized enterprises, of which is made of 3 different types of enterprise, and they are; micro, small and medium size enterprises. The size of a firm depends upon the number of employees it handles and the industry sector and the market in which a given firm operates.
‘Small enterprises are the backbone of the European Economy’ (Chapter for Small Enterprises, European Council, 2000). They represent in excess of 90% of the worlds gross domestic produce. There are 5 million SME’s in the European Union (Pg. 31,A Guide The Understanding and The Interpretation of Financial Statements, Dr. Clive Vlieland-Boddy, 2008)
Market failure is when the competitive outcome of markets is not efficient from the point of view of the economy as a whole. Market failure may occur when freely functioning markets operating without government intervention fail to deliver an efficient or optimal allocation of resources. A decrease in technical efficiency would also lead to market failure whereby the production of goods and services are not using the minimum amount of resources possible, e.g. burning up finite resources such as oil.
Market failure can be caused by both macroeconomic and microeconomic variables.
Inflation, interest rates, and economic recession are all macro causes for market failure. These can be said to be more widely influenced by the government. However on the other hand, the Bank of England sets interest rates, of which is now independent from the government.
Microeconomic factors for market failure comply with the idea of supply and demand in a specific industry sector. This may be a ‘knock on’ effect of
Market failure is often given as a justification for Government support of the SME sector. Discuss the various types of market failure, which are said to occur and, drawing on the literature, discuss whether they are valid justification for Government intervention.
The SME sector of an economy is the small to medium sized enterprises, of which is made of 3 different types of enterprise, and they are; micro, small and medium size enterprises. The size of a firm depends upon the number of employees it handles and the industry sector and the market in which a given firm operates.
‘Small enterprises are the backbone of the European Economy’ (Chapter for Small Enterprises, European Council, 2000). They represent in excess of 90% of the worlds gross domestic produce. There are 5 million SME’s in the European Union (Pg. 31,A Guide The Understanding and The Interpretation of Financial Statements, Dr. Clive Vlieland-Boddy, 2008)
Market failure is when the competitive outcome of markets is not efficient from the point of view of the economy as a whole. Market failure may occur when freely functioning markets operating without government intervention fail to deliver an efficient or optimal allocation of resources. A decrease in technical efficiency would also lead to market failure whereby the production of goods and services are not using the minimum amount of resources possible, e.g. burning up finite resources such as oil.
Market failure can be caused by both macroeconomic and microeconomic variables.
Inflation, interest rates, and economic recession are all macro causes for market failure. These can be said to be more widely influenced by the government. However on the other hand, the Bank of England sets interest rates, of which is now independent from the government.
Microeconomic factors for market failure comply with the idea of supply and demand in a specific industry sector. This may be a ‘knock on’ effect of