When the market fails there are calls for the government to step in and clean up the mess. Here, we consider three market failures:
1.externalities,
2.public goods, and
3.informational problems.
Examine each market failure and the effect of each failure considering perfect competition as a benchmark.
There are alternative methods for dealing with market failures that include direct regulation, incentive programs such as tax incentive programs and market incentive programs, and voluntary reductions. At issue, is whether government can successfully address market failures.
Write a brief report (500 words) addressing the following:
•Are there sources of market failure other than those listed in your readings?
•Describe how government intervention to address a market failure might worsen the situation.
•Provide an example of where government intervention does work and why that is so.