Market Failure, In Economics, Is A Situation Defined By An Inefficient Distribution Of Goods And Services In

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Soal

Market failure, in economics, is a situation defined by an inefficient distribution of goods and services in the free market.

Please propose some possible solutions to overcome this problem. Please give detailed explanation!

Jawaban

1. Externalities

Externalities occur when the production or consumption of a good or service affects a third party who did not choose to be involved.

Solution: Implement Pigovian taxes or subsidies.

These are taxes or subsidies designed to internalize the external cost or benefit.

For example, if a firm is emitting pollutants, a tax can be imposed on the emissions to discourage pollution.

2. Public Goods

Public goods are non-excludable and non-rivalrous, meaning that individuals cannot be excluded from their use, and one person's use does not diminish its availability to others.

Solution: Government provision of public goods.

Since private firms may not find it profitable to produce public goods, the government can step in to provide them.