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Homework answers / question archive / Many people discuss markets but they never talk about how a market directly effects an economy and may really be a market failure

Many people discuss markets but they never talk about how a market directly effects an economy and may really be a market failure

Marketing

Many people discuss markets but they never talk about how a market directly effects an economy and may really be a market failure. Do we have at present any market failures?

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A market is a place where two parties interact with each other in order to buy and sell goods and services. The proponents of the free-market argue that free-market leads to the optimal outcome in the economy. But sometimes the free-market leads to market failure when the allocation of goods and services is not Pareto efficient. Asymmetric information, irrational exuberance (over-investment), closed and restricted markets, externalities, anti-competitive practices in the market are some of the causes which lead to market failure in the economy.

Yes, we have a market failure. Today climate change is considered to be one of the biggest market failures by environmental economists. It is because climate change due to industrialization and globalization is causing a loss of trillions of dollars every year to the different nations of the world.