1) Externalities:
Positive Externalities are a good or service that is provided to the public that has positive effects upon the social lives of the people within it. An example of a positive externality is free medication provided to the public through the NHS or Pharmacies. These are positive introductions to the public, which are most of the time easily accessible to all people
Negative Externalities are when a good or service is provided to the public that has adverse effects upon their lives or the environment within which they live. An example of this is the burning of leaves on a bonfire. This may benefit one constituency with the removal of the waste, however, the fumes released may be harmful, or may be uncomfortable for those in the surrounding area.
2) lack of competition:
A lack of competition is very bad for a market of any kind. Competition keeps firms honest, and can have many benefits upon the consumer population. If a firm does not have any competition or has very scarce amounts of it, then this firm is said to have a monopoly. This means market dominance ostensibly. If a firm has a monopoly, then this will be very bad for the consumer. The reason why is that they can raise prices and know for a fact that demand will not go down, as there is no alternative good or service that the consumer could buy, so this will only benefit the firm further. It may also be bad for the consumer, as if a firm does have competition, then they will always be looking to improve their good or service, so that they can gain the more dominant position on the market, but if there is no competition, then a firm will not have to do this.
3) Asymmetric Knowledge:
Asymmetric knowledge occurs when a supplier, or a consumer has superior knowledge over the person whom they are doing business with. This is a market failure, as one of these individuals will be mis-sold, as they do not know as much as the selfish seller or buyer. An example of this is with private dentistry. Dentists often exploit their superior knowledge over their patient, by telling them that they need a certain procedure, that they most likely do not need. They do this as it brings in easy revenue, and the consumer is not an expert in that background so listens due to a trust that they have for the professional. Another example of this is if a consumer walks into an antiques shop, and sees a high value chair from hundreds of years ago, but is only selling for a few pounds, the consumer will exploit their knowledge over the unbeknown supplier, and buy the good for a price that is not in the slightest fair for the quality of the product.
4) Missing Markets:
Missing Markets are an example of a market failure. They occur in public goods or services, whereby the public will wait for someone to pay for that good or service to be installed or maintained, without putting any funding towards it. An example of this is lighthouses, or street lights. Anyone can use these goods, and do not have to pay for them. It is often the government who has to pay for these goods using funding allocated from the tax budget.
5) Merit & De-Merit goods:
A merit good is a good or service that provides a beneficial service to the public, that is usually free of charge. An example of a Merit good is free medication from the NHS, or street lighting from the government. These goods, however are often short in demand from the public. The reason for this is that due to a lack of information or education on the potential benefits it could have to the public, people do not utilise this resource.
A de-merit goos is a good or service that provides negative effects both for the consumer and the community that could have health repercussions as a result of using this product. An example of this is cigarettes, or illegal narcotics. These goods are harmful to the users, and to the public around, e.g. secondhand smoking. These goods, unlike merit goods remain in high demand. The reason for it is identical in the sense that many people are not given the right information in regards to the damage it could do to those around them, so are to this day still in high demand.
6) Underemployment:
In many professions, once the job has finished, or the firm shuts down, then many workers find it extremely difficult to find work. For example, in the 70's, when Margaret Thatcher shut down the mines and ship building yards, there were huge amounts of unemployment in the North of England. The reason fro this was that these workers were skilled in that specific line of work, and were not in the slightest qualified to try another line of work, or didn't want to do anything else. Another example is with army soldiers. These soldiers are specialised in combat situations, but are not suited to city jobs. As a result, when they return from their tours in other territories, they are unable to find work, as they do not have the necessary skills.
Geographical underemployment is another issue with the employment levels in an economy and is an example of a market failure. This happens for example, when someone in the North of England wants to move to London, so they try to sell thei rhouse, but the amount they will be able to sell their house for their is incredibluy disproportionate to what you can buy in the Northern parts. The more expensive lifestyle also means that this relocation is impossible. Thus the allocation of workers shows a market failure in giving unemployed people the opportunity to work.
GOVERNMENT INTERVENTION AND MARKET FAILURE
Government intervention may seek to correct for the distortions created by market failure and to improve the efficiency in the way that markets operate
- Pollution taxes to correct for externalities
- Taxation of monopoly profits (the Windfall Tax)
- Regulation of oligopolies/cartel behaviour
- Direct provision of public goods (defence)
- Policies to introduce competition into markets (de-regulation)
- Price controls for the recently privatised utilities
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