Market Failures and Exceptions
ECO 2071 – Micro-Economics
20 Oct 2017
Theoretically, the policies set forth by the government seek to improve the efficiency of the
economy. This is done by identifying market failures and unfavorable actions, which are
Market Failures and Exceptions
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externalities that are present in all facets. Market failure occurs when allocation of resources are
not at the optimal equilibrium point when all factors are considered. Ultimately, we have to ask
ourselves if this government intervention actually corrects market failures, restores societal
welfare, and returns inefficient processes to that which is efficient (Mankiw, pg. 196). This
paper assesses several market failure dilemmas and the allocation of resources through
government intervention or individual bargaining.
Achieving the supply and demand equilibrium for the producer and consumer is the key for
an efficient market, but only when those are the two parties involved. Therefore, when another
entity such as society is involved, it becomes far more complex. This is especially true when the
producer is impacting exterior elements, such as a river or air, through pollution. In situation
one, “Firm A” produces cement sifters by means of combining and melting chemicals and metals
