Question

List the three reasons why the market system may not operate to maximize the net social benefits of land use.

Answer 1

The market system may not operate to maximize net social benefit because of externality through spillover effect of land use. The other two reasons are locational monopoly and incomplete or asymetric information. The spillover effect could be traffic congestion, smoke emissions etc. For these spillover effect initiator is not accountable. Second is as location has a major factor in land so the market system do not give social benefit. Third is incomplete and asymetric information because buyer do not know the hidden quality of land building. Buyer also do not know resistance power from wind. These asymetric information actually do not give actual social benefit through market system.