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. Using a country of your choice as an example demonstrate how the government seeks to compensate for market failures.(Japan)
Pages 10 (2510 words)
Market failures occur when markets fail to allocate resources systematically to their most valued use. The main types of market failures can be of four types – those associated with the public goods, spillovers (externalities), market power or imperfect information (Rama and Harvey, 2009).
Externality effects would gradually become global as globally integrated markets develop. As externalities become huge they pose challenge to achieving macroeconomic stability which in turn challenges the international political architecture. ‘Efficient’ allocation of resources according to economists implies that all possible mutually beneficial trades have been exhausted (Holtom, 2011). This means that proper coordination between willing buyers and sellers has been accomplished. The nature and extent of market failure determines the role that government would play and whether government intervention is at all necessary. Markets rarely correspond to the ideals of a perfectly competitive market as defined by the economic theory (Rama and Harvey). These imperfectly competitive markets may have efficiently allocated resources to derive the best value. Certain conditions termed as ‘market failures’ render government intervention necessary. While failure to systematically allocate resources is evidence of inefficient allocation of resources but this is not sufficient reason to justify government intervention. Government intervention in markets can be costly and the benefits must far outweigh the costs if government were to intervene. ...
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