Question

Choose one broad area of public policy, such as education or health care. Identify and briefly explain two potential market failures. For one of the market failures, explain precisely how governments actually intervene to address the market failure. Or if the intervention does not address the market failure, provide a brief explanation as to why this might be.

Answer 1

The market for education fails on various counts to guarantee an efficient allocation of resources and deliver quality education through competition. Not only is the market an imperfect one due to the differentiation in the quality of education, but also the social demand for education is higher. The private sector fails to provide the efficient level as there is positive externalities associated with education. The government can mitigate the problem by public provisions of education.