Market failure

Market failure

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  • There is only one gas station  in the country! This can cause market failure because it tends to reduce the inefficient use of scarce resources.
  • Government can fix this by assuring competition
  • This health insurance companie has acess to a person's health history before it buys the service. This comapany will prefer to sell policies to health people. Not enough information can cause market failure
  • Government can fix this by assuring adequate information
  • This nuclear company moved to another place and now lots of workers ar unemployed. This is called resource immobility and can cause market failure.
  • Government can fix this putting taxes over companies who move to another place
  • There are few public goods such as parks, highways, police and fire protection.  This can cause market failure since private markets do not supply public goods efficiently because there is not enough profit to be made by producing them.
  • Government can fix this by providing more public goods
  • Another market failure reason is called externality or spillover effect. Spillover effects cause market failures when the costs and benefits of a new activity are not reflected in the market prices that users pay.
  • Government can fix this by taxing good when their productiongenerates spillover costs
  • These are the reasons why a market can fail
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