Most markets in the in the world face crashes from time to time. Market failures happen in situations where the markets are unable to carry out their role in distribution. Market failure can be categorised into different ways, but this paper will be tackling the market incapacities and how the government responds in solving it. Market failure to some extent means that the economy of a country is in a total mess. The government needs to know what made the market to fail to correct it as a way of solving the market failure problem. The government has got a more significant role to play in fixing market failures (Kenneth, 2009).
Inadequate or no competition is one of how we can say that the market has failed. Scarce or no competition is caused by merging of companies to form one more prominent company. This results in monopolism as the companies selling one product that was once competing in the market are now one company. Monopolism is dangerous to both the market and the general government. The government is unable to control it as it is threatened that the company will move out of government which may lead to collapsing of the whole market. The productivity of the market eventually reduces. The government now tames this situation by coming up with specific mechanisms. The mechanisms used by the government finally bring up different competition patterns in the market (MacKenzie, 2002).
One of the main mechanisms that the government can use to rectify market failures is by introducing tax reliefs. This is organized in such a way that key industries operating in the market experiencing failure are given a period that they are not allowed to pay taxes. This is mostly used in situations wherein incapability in the market is as a result of resources not mobile. Resource immobility is one of the problems that are experienced in some markets. Some of the market resources whose immobility may affect the market include labor, capital and entrepreneurship. This is possible if most stakeholders in the market decide to move out of the market. The move increases unemployment as a market cannot operate without stakeholders. By the government introducing tax reliefs, the stakeholders will be encouraged to stay. The new tax rates can also convince those who had moved, and they will opt to come back (John, 2008).
In most cases, you may find that the government manages the market. Management by the government means that the government owns most of the cooperations operating in a given market. It is broadly known that partnerships that are owned by the government are less resourceful and their productivity is always wanting. This is due to mismanagement. Most consumers do not prefer using government corporations. This may lead to stagnation of the companies hence the market. The government can correct this failure by ensuring that the market corporations that are operating in the market that has failed are privatised. Privatization will involve the government granting full individual rights of owning and operating the companies. Individuals can also be allowed to make new companies operate in the market hence improving completion (Bowles, 2004).
Market failure sometimes also happen as a result of insufficient information on a product by consumers. Demands by the government for product branding and product information release can rectify this problem. With this, the consumers can evaluate the market products now that they have full information about different products.
References
Bowles, S., (2004). Macroeconomics: Behavior, Institutions, and Evolution. United States: Russel Sage Foundation.
John, O., (2008). Market failure, The New Palgrave Dictionary of Economics, 2nd Ed. Abstract.
MacKenzie, D.W., (2002). The Market Failure Myth. Ludwig von Mises Institute. Retrieved 2008-11-25.
Kenneth, J., (2009). "The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Non-market Allocations," in Analysis and Evaluation of Public Expenditures: The PPP System, Washington, D.C., Joint Economic Committee of Congress.
