- What is Market Failure?
According to, Garcia, Irwin & Smith, (2015) market failure can be termed as the economic situation defined by an insufficient distribution of different kinds of goods and services in the free market. Apart from this, the individual incentives for the rational behavior do not lead to proper outcomes for the group. In economics market failure can be termed as a particular situation where the proper and efficient allocation of the goods and services by a free market is not effective and thus it leads to the net social welfare loss of the business organizations.
- How can the Government intervene to increase the social welfare?
The governments of a country often intervene in the market to ensure the smooth operations in the marketplace and also to ensure the social welfare of the employees. In the presence of a free market system, governments often take the view that the market places are the most ideal places to easily allocate different kinds of scarce resources and easily allow the different kinds of market forces of supply and demand to set out the prices. Some of the major reasons for the Government to intervene in the market include the correction for the market failures, achievement of a more equitable distribution of income and wealth and also to improve the performance of the economy (Bond & Goldstein, 2015). The interference of the Government in the market can help the organization to revive itself and involve itself in social welfare models to play a vital role in the improvement of the society.
References
Bond, P., & Goldstein, I. (2015). Government intervention and information aggregation by prices. The Journal of Finance, 70(6), 2777-2812.
Garcia, P., Irwin, S. H., & Smith, A. (2015). Futures market failure?. American Journal of Agricultural Economics, 97(1), 40-64.
