1. Market Failure

2. Nature of Market Failure
 When market forces fail to produce the products that consumer demand ,in
the right quantity and at the lowest possible cost.
 Markets are inefficient
 Shortage of SS
 Surplus
 High Pricing
 Poor Quality
 Lack of innovation

3. Failure to take In Account all Cost
(ss)and Benefits(dd)
Social Benefit > Private Benefits
Then there will be under-consumed and under production.
The demand is less as compared to the social benefit received.
Social Cost > Private Cost
Then there will be over- consumption of products.

4. Other Reasons of Market Failure
 Information Failure
 Merit Goods
 Demerit Goods
 Public Goods
 Abuse of Market Power
 Immobility of Resources
 Short Termism
 Unfairness
 Government Failure

5. Information Failure
 Consumers : Availability of product at low price, offers, nature of the product
and the benefits they can receive from them.
 Workers : jobs on offer, location of workplace, qualifications required and
remuneration.
 Producers : what products are in demand , good quality of Raw materials can
be purchased at a lowest possible prices ,Cost effective method of
Production.
 Any failure by any of these regarding the information will lead to Market
Failure

6. Merit Goods
 Products which are more beneficial to the consumers than they themselves
realize and benefits( External benefit) does not depend on direct
consumption are known as Merit Goods
 Eg: Health Care, Hospitals, Education
 These goods are under consumed and government provides subsidy to the
consumers.

7. Demerit Goods
 Products which are harmful to the consumers than they realize and they
generate a external cost are known as demerit goods.
 Eg : Cigarettes , Alchocol, Drugs etc…
 These goods are over consumed and thus over produced.

8. Public Goods
 A product that one individual can consume without reducing its availability to
another individual and from which no one is excluded.
 Economists refer to public goods as "non-rivalrous" and "non-excludable".
 E.g. :National defense, sewer systems, public parks and basic television and
radio broadcasts could all be considered public goods.

9. Abuse of Market Power
 Producers having more market power than the consumers.
 Thus the firm may not be allocatively ,productively and dynamically efficient.
 Abuse of market Power may also occur when there is more than one firm
producing the product. They may go for PRICE Fixing

10. Immobility of Resources
 Movement of resources towards the demand.
 Resources must be both occupationally and geographically mobile.
 A government provides various grants to improve the mobility of the resource.
 Eg: Occupational Mob : improves educationa & providing trainings
 Geographical Mob : Investment grants on Land

11. Short Termism
 Market forces may not result in sufficient resources being devoted to CAPITAL
GOODS, which may enable to increase Standard of Living by improving quality
of goods.

12. Unfairness
 Income distribution can become uneven if it is solely determined by the
market forces.
 Thus government gives financial assistance to the poor and essential products
free of cost.

13. Government Failure
 A situation where the government intervention worsens the situation instead
of improving.
 Due to
 Lack of information
 More of private benefits