Market Failure occurs when the price mechanism fails to allocate resources efficiently and equitably. Usually the government has to take actions and provide a non market mechanism to allocate scarce resources.
INEFFICIENCY ARISES WHEN:
- existence of externalities
- missing markets
-market imperfections(information failure - merit + demerit goods and market power)
INEQUITY ARISES WHEN:
distribution of income and wealth in the market economy is unequal and unfair
By Puja
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