Market Failure and Government Failure Assignment

Market Failure and Government Failure - Assignment Example The governance failure under these circumstances best describes the law studied for my policy. This is based on the fact that the government is destined to always respond in two ways to market failure and that can be through action or inaction. Both the two approaches can always succeed or fail. Market failure as identified with negative externalities b) Negative externalities occur when the action from one player in the market is harmful to the other. For instance, the factory owners in most instances concentrate on their production than the likely harm that the emissions from their plants are causing to the general public. The pollution secondary thus become secondary to them at the expense of the environment and health of the people. c) Public good and its framing within market failure Public goods have two outstanding features: nonrivalrous and non-excludability consumption. Under non-excludability, it amounts to being prohibitive the cost of non-payers enjoying benefits of certa in goods or services. For example, in the case of a show of fireworks, other people are likely to watch this show from either their backyards or windows. For this reason and on the basis that the one staging the show is not in a position to charge rates for consumption by the observers, then the show is likely to be dismissed. This would happen no matter how strong the demand aspect of the show. The underlying factor, therefore, is that there exists an assumption of free markets determining prices, which prevents market failures. This is entirely false in the sense that situations may arise where those who pollute the environment do not pay for whatever they produce and this already is a market failure. On the same precept, the failures can emanate from the government through actions such as distortion of market prices like when they subsidize production. This has been particularly witnessed in the aerospace as done by most states in Europe. The various policies and the theories dic tating market failure and government failure are blended in such a way that the two are interdependent on one another.