Question

Explain market failure with special emphasis on the efficiency criterion

Explain market failure with special emphasis on the efficiency criterion

Homework Answers

Answer #1
  • Market failure refers to the economic situation faced by many free economies in which there is an ineffective distribution of goods and services.
  • Market failure occurs when an economy's efficiency criteria is not met hence leading to social welfare loss.
  • The main reason behind this failure is due to the fact that the people influencing the market activities are self centered and do not act in accordance with the social point of view.
  • This will lead to the results that are not efficient and can only be improved if actions are taken by keeping the societal point of view in mind.
  • When the value of produced goods is not equal to the value of the forgone production a market fails as the market efficiency condition is not met.
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