Market Failure Concept, Causes and Solutions

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The concept of market failure, its main causes and solutions available are of interest here. The concept of market failure has very much to do with understanding the competitive market equilibrium; that is, the ‘ideal’ market where economic efficiency and resource allocation are at their equilibrium. Economist, Alfred Marshall, was the first to come up with the ‘ideal’ market model as a theoretical benchmark in understanding real world market economies; his‘Demand and Supply Curve’. (Dasgupta, P., 2007, p. 73) Fig. 1.0 Demand and Supply Curve. According to this model, the ‘ideal’ market equilibrium is the point of intersection between the Supply and Demand Curves. It is at this point (market equilibrium point) that the market demand equals the market supply (Dasgupta P., 2007, p. 73), and economic efficiency and resource allocation are at their best. What this means is, firms will supply enough to meet consumer demands and their production costs; whilst consumers will demand enough to satisfy their consumption needs at a price that they can afford. There is no surplus or deficit of supply or demand; it is equal. The factors in the process of production, distribution and consumption of goods or services are also verifiable, justified and equal. It is against this market equilibrium point which economists gouge the state of ‘real’ world markets. Market failure is the term used when the competitive market equilibrium in not reached or is not present when comparing ‘real’ world markets and the ‘ideal’ market. According to Hubbard, Garnett, Lewis and O’Brien (2010, p.135), market failure is the situation when the market fails to produce, “economically efficient level of output”, where marginal benefit of consumption does not equal marginal cost of production in a given arrangement of trade. In short, the poor or non-existent allocation of resources does
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