Causes of Market Failure

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Market failure can be defined as the situation with the inefficient allocation of goods and serviced by the free market.

Here are the reasons that lead to market failure.

• Inadequate competition – It exists when the economy market is a monopoly where the market is controlled by one person or a small group of people.

• Inadequate information – In the absence of adequate information, it is difficult to employ and distribute resource at an efficient level.

• Resource immobility – When resources are restricted, it can lead to market failure as resources can be allocated at an inefficient level.

• Externalities – It can be defined as an economy side effect that either benefit or harm a third party who is not directly involved in the activity.

• Public goods – These are those goods that are collectively consumed by the whole society like roads, national defense, police, fire protection etc. These lead to market failure as no payment is made on public goods.

• Imperfect competition – Forms of imperfect competition include monopoly, oligopoly, and monopolistic competition.

• Market power – It is also one of the reasons for market failure as it refers to a firm who can influence the price by exercising control over its demand.

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To know more and admissions, visit: https://rcbs.rajagiri.edu/


Location: Kerala, India

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