When Market failure happens, what types of public policy are necessary to result in the net benefit maximizing level of output, when buyers and sellers are transacting a good with negative externalities, or when the good is a public good?

Various types of public policies could be implemented to solve the issue of market failure, which are listed below:

• To reduce the demand for luxurious goods, the government can raise the taxes on items so that the demand could be reduced. This will benefit the economy as a whole.

• In the case of alcohol or other restricted items, the government may decide on an age limit or introduce some of the laws and regulations.

• Government should make a policy in regards to the pollution permits. Industrial waste is also one of the major reasons for market failure.

• Introduction of the buffer stocks or minimum or maximum support price can solve market failure issues.

• Sometimes, the cause of market failure is also because of the income rate of various individuals. The government can introduce the policies for minimum wage rate to purchase the necessities without paying the additional cost.

Market failure

Market failure is a concept which describes a realistic situation in the market and includes the biased distribution of goods and services. Market failure exists when the goods are unevenly distributed or produced. For instance, if more luxurious goods are produced in the economy, the gap between the haves and have nots would be increased. This situation would result in market failure.