Category: Market Failure
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Government Failure
Government Failure is a phenomenon that occurs when the government’s intervention in the economy or society produces outcomes that are worse than if the government had not intervened at all. Formally defined as ‘When the government intervention leads to an inefficient allocation of resources and a net welfare loss.’ While the government is often seen…
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Auction Theory
Looking into auction theory and the information asymmetries, among other problems, faced. Building on the previous article about information asymmetries, one specific example in which this can happen are auctions – there can be information asymmetries between buyers themselves, as it is unknown how much each potential buyer is willing to pay. So, the buyers…
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How can governments prevent monopolies?
We’ve established what monopolies are – but how do we stop them? Governments prevent monopolies and oligopolies by using anti-trust laws in markets. These stop companies from working together to form oligopolies and maintain competition in the market, such as by forcibly restricting the size of the market share that a company can own through…
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Monopolies
What happens when one company or a group of them take control of the market? A monopoly typically occurs in a free market where competition is encouraged, and in essence, happens when a company has a large enough market share in that particular field that it can control that market, and this means they can…
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Information Asymmetries
Information is very important, so what happens when one party knows more than the other? Asymmetrical information is when one party knows more about the good or service being purchased than the other, resulting in the other party not receiving a product or payment of equal value to their product or payment. For example, a…
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Occupational Immobility
Exploring the consequences of unemployment in its different forms Occupational immobility happens when there is a significant change in the labour market, such as deindustrialisation, but you cannot change jobs due to the different skill sets and education required. It is a term used to describe a situation where an individual or a group of…
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Geographical Immobility
When markets fail due to location-based complications Geographical immobility occurs when you are unable to or find it challenging to move from one location to another, for example, between cities or migrating to another country. For example, moving from Liverpool to London would be extremely difficult due to the difference in house prices. The land…
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What is Market Failure?
What happens when resources are not allocated efficiently or at all? Formally defined, ‘Market failure is the economic situation defined by an inefficient distribution of goods and services in the free market.’[1]. Traditionally, this can be represented by a steady-state disequilibrium, where supply falls below demand due to an unforeseen external reason, and a shortage…
Economics 101 