One of the main themes of economic theory is market failures and the role of the state in economic development. It allows you to understand why the market and society cannot function normally without the intervention of management forces.
Market failures result from imperfect market institutions and instruments. At the same time, one of the main points is that a perfect market economy is not able to solve socio-economic issues that are very important for society. That is, a market that operates autonomously will simply not take care of ordinary citizens, since it will not have an incentive to do so.
Government intervention
This is where government intervention is needed. If trade relations do not allow the rational distribution of funds between citizens, it is necessary to create conditions for this. For example, free education. If the market exists autonomously, people may not be provided with knowledge, since it is not profitable to train everyone at once. Better to teach literacy only to those who have money.
It can be concluded that market failures are a kind of obstacle that does not allow society to achieve efficiency. As a rule, there are four main and several additional failures. These are externalities, public goods, monopoly, and asymmetric information.
Major market failures
Externalities are understood as anything that is not directly related to the economy. The most striking example is the chemical pollution of water bodies. If the state did not create laws to protect the environment, entrepreneurs would have long been able to destroy entire flora and fauna. There is no point in building treatment facilities, spending money, if everything can be done like that. Environmental laws establish certain standards, exceeding which can lead to a huge fine.
Public goods are everything that society needs, but is not someone's private property. For example, roads. People need conditions for transportation. If the market ruled everything, high-quality roads would only be on the way to the enterprise, and in other places there would be devastation. The same goes for education, medicine, police and more.
Monopolies pose a threat to most of society. Imagine that you can only buy bread from one person. At the same time, he can dispose of its price and quality as he wants. For example, put a price of 1000 rubles. for a loaf, but the quality is terrible. Even if you wanted to buy other bread, you simply would not succeed. The state prohibits the operation of such enterprises.
The last point is information asymmetry. In simple terms, these are conditions in which the seller knows more about the product than the buyer. As a result, negative dynamics is observed. For example, a buyer can buy a very low-quality product because he does not know the exact characteristics. The state develops GOSTs and forces manufacturers to indicate all the necessary information.
