This report has been produced to explain and understand term
Market Failure. Explanation contains appropriate reference to the role of
government in relation to the Public Goods, Merit Goods, Externalities, and
Imperfect Competition. The other section of the report is based on research
about UK Government policy and its clarification. Identification of the
instruments the government use to achieve their policy. Justification and
evaluation of the performance of the above policy in relation to its use in
within the UK.
In economics, Market Failure is a situation where the
allocation of goods and services is not efficient. Market failure occurs when
the price mechanism fails to account for all the costs and benefits necessary
to provide and consume a good. The market will fail by not supplying the
socially optimal amount of the good. The reason for Market Failure include lack
of public goods, positive and negative externalities, environmental concerns,
and underproduction of merit goods.
Public Goods in economy are goods or services which can be
consumed by residents and among others like defence, public fireworks,
lighthouses, clean air. Government provides us these goods. If any of mentioned
examples would be private, owners would not have any profits of it.
Merit Goods are all goods and services which we cannot live
without. The basic goods which Government feels people will under consume.
These goods and services are funding by government which provide people a
proper standard of living. The main examples of merit goods and services are
education and medical care. In situation if all these services and goods would
be left to the market for many people with low income it could be not
achievable, the prices could be too high for them. People may be left without
any medial hospitalisation, or schools.
Externalities are consequences of activities born due
production and consumption by society and environment, where is no appropriate
compensation paid. The common example of externalities is pollution, which is
the biggest problem these days. Health and clean-up costs from pollution impact
all of society, not just individuals within the manufacturing industries. The
government try to stop these activities, by introducing regulations and
penalties for manufacture environment. Industries must be controlled, this will
decrease diseases and help to keep our environmental cleaner.
Imperfect competition is a market structure showing
competition between businesses. This is situation where there are many sellers on
the market with different goods and prices. If seller is selling some unusual
good or services, then he might increase the prices and earn profits. The high
profit is attractive for other sellers, where nowadays businesses want to keep
prices on track with others. This situation can cause prices are too high for
consumers which cannot afford these goods due to low income.
2010 to 2015
government policy: environmental quality
The policy has been introduced due to air pollution, noise
from neighbours or traffic. Issue of policy cover litter, graffiti,
fly-posting, abandoned vehicles, and dog fouling. The mess and litter around
the streets has big impact of people quality life and build antisocial
behaviour among the people. Roads traffic and noise annual cost in England has
been estimated for £7 billion to £10 billion. This situation giving us clear
evidence for relation between roads traffic and various type of illness which
increased in the last few years, because pollution affect our lives. It is
proven that air pollution is not good for our health, and damage our
biodiversity system. Moreover, in England it has been estimated to reduce the
life of expectancy of everyone by 6months due to poor air quality worth £16
billion per year. Nowadays chemicals are everywhere, our homes, food, or
clothes. That’s why it must be regulated.
Due to a huge
amount of pollution local government and international government are working
with on to improve air quality by controlling emissions of harmful pollutant
and concentrations of harmful pollutants in the environment. National Air
Quality strategy has been introduced in 2007. The main purpose of This Air
Quality Strategy is improving air quality and reduce air pollutant emission in
the UK from today into the long term, what will bring people benefits of
health, better quality life, and protect the environment.
‘A Green Future’
Government introduced 25 Year Environmental Plan. The aim of this plan is to
improve the environment within generation and leave it better then we found it.
This environment plan sets out our goals for improving the environment and make
it better in the next 25 years. This program includes detail strategy how the
government will be corporate with the societies and businesses to achieve this.
Justification and evaluation
The aim of introduced policy is to improve better quality
life and live longer in healthy environment. The policy helped to corporate
people and market within environment in more effective way. The government is
working on several fronts to make sure that air quality is getting better for
example daily forecast of air pollution is published to give health advice to
people with illness like asthma, see Appendix 1. UK government decided that it is
a crime to drop anywhere in land any litter or make a mess. Therefore, it has
been decided to put the law in place to help local authorities prevent that
from happening, fixed penalty notices are also introduced, Appendix 2. In general, the environmental quality policy
educate citizen how to make our earth better and live longer within healthy
environment. There is clear evidence that since 1970 to 2015 emission of air
has been decreased, see the table below in Appendix 3.