Market Failure

In microeconomics, the term "market failure" does not mean that a market is no longer functioning. In fact, a market failure is a situation where a market efficiently organize production or allocate goods and services to consumers. Economists normally apply the term to situations where the inefficiency is particularly dramatic, or when it is suggested that non-market institutions will provide the desired results. On the other hand, the political context, stakeholders may use the term market failure to situations where market forces do not serve the "public interest", a subjective statement which is usually made of social or moral grounds.

Four main types of causes of market failure are:

* Monopolies or other cases of abuse of market power where a "single buyer or seller can exert significant influence over prices or output. Abuse of market power can be reduced by using the laws of anti-trust. [5]
* Externalities, which occur in cases where "the market does not take into account the impact of economic activity in outsiders." There are positive externalities and negative externalities. [5] Positive externalities occur in cases such as family health program on television improve public health. Negative externalities occur when a company's processes pollutes air or waterways. Negative externalities can be reduced by using government regulations, taxes, or subsidies, or by using property rights to force companies and individuals to accept the consequences of their economic activity at the level they should.
* Public goods such as national defense [5] and public health initiatives such as draining mosquito-breeding marshes. For example, if draining mosquito-handed in the private market, far fewer marshes would probably be drained. To provide a good supply of public goods, nations typically use taxes that compel all residents to pay for these public goods (due to scarce knowledge of the positive externalities on third parties / social welfare).
* Cases where there is asymmetric information or uncertainty (information inefficiency) [5]. Information asymmetry occurs when one party to a transaction has more information and better than the other party. Usually the seller that knows more about the product than the buyer, but this does not always happen in this case. For example, the used car business may know mbil has been used as a delivery car or taxi, information that is not available to the buyer. Instances where the buyer has better information than the seller be an sale of a house, which requires the testimony of the previous occupants. A real estate broker to buy this house may have more information about the house than the family members left behind. This situation was first described by Kenneth J. Arrow in a seminal article on health care in 1963 entitled "Uncertainty and the Welfare Economics of Medical Care," in the American Economic Review. George Akerlof later used the term asymmetric information in his 1970 The Market for Lemons. Akerlof noticed that, in such a market, the average value of commodities tends to decline, even for the quality of perfectly good, because the buyer has no way of knowing whether the products they buy will be a "lemon" (a defective product) .