Analysis of Market Failures Assignment Example | Topics and Well Written Essays - 500 words

Analysis of Market Failures - Assignment Example Therefore, in order to counter this market failure, government intervenes, takes taxes from people and provides them the goods which are not provided by price mechanism, such as street lights, lighthouses, police etc These were some cases, where market forces of price mechanism fail to provide the people with the right quantity of goods and results in market failures. However, a new way adopted by most governments to counter market failures is by adopting a mixed economic system, where there is both price mechanism and government control. Whenever the price mechanism fails to provide a good or service, or over or under provides it, the government comes forward and takes care of the market. For example, to counter the overproduction of demerit goods, it increases the taxes on those goods. Similarly, in order to increase the production of merit goods, it usually provides subsidies on them, so that these goods are provided more in the market. Thus, we can conclude from this essay that even the most efficient system of allocation of resources can sometimes fail to allocate the resources in the most efficient way. This situation is known as a market failure, and if not dealt properly, it will lead the market towards inefficiency and hence there is a need for good government control to counter the problem. Â