Market failure is a consequence of the imperfection of market instruments and institutions. At the same time, there is an inability of these components to satisfactorily solve socio-economic issues that are important for society. If for some reason the main elements of the market mechanism when working offline do not provide social efficiency, then in this case there is a need for government intervention in the development of the economy. Trade fiasco is talked about when it does not contribute to the rational distribution and use of resources.
Market failures are obstacles that prevent the economy from achieving social efficiency.
As a rule, there are four ineffective situations. They point to market failures. These include imperfect (asymmetric) information, monopoly, public goods, external effects.
It should be noted that the market is not able to lead to social efficiency if the activities of some consumers or producers affect the well-being of others. When this influence is positive, then there are external benefits. If the impact is negative, then external costs are generated. They, in turn, are associated with the manufacture of any good. Social costs include private spending and the external effects of production.
As a rule, when market failures occur, the state enters into economic relations. Problem solving is carried out using various means. So, the state pursues an antitrust policy, restricts the manufacture of products with negative external effects. At the same time, production and consumption of economic goods with positive effects are stimulated.
The indicated directions of state activity constitute, to a certain extent, the lower boundary, in accordance with which the government intervenes in the market. However, today the state has broader economic functions and is able to more effectively eliminate market failures. Among the main functions of the government are the following: the introduction of unemployment benefits, infrastructure development, the establishment of various types of benefits and pensions for low-income citizens and others. It should be noted that a small number of these activities have the properties of exclusively public goods. Most of them are not intended for collective, but for individual consumption.
The state, pursuing antitrust and anti-inflationary policies, seeks mainly to reduce unemployment. Over the past few years, the authorities have been taking an increasingly active part in managing structural changes, stimulating and supporting scientific and technological progress, and trying to maintain a high level of development of the national economy. Together with foreign economic and regional regulation, these measures indicate the importance of the role of the state in the economy. Over the course of the 20th century, the apparatus of power strove to effectively solve two problems interconnected with each other. First of all, the state tried to ensure stable operation of the market. Secondly, the apparatus of power tried, if not solved, then to alleviate acute social and economic problems. All these actions were aimed at preventing market failures.
At the same time, as many analysts note, the rapid growth of state regulation cannot continue uninterrupted. Thus, in a market economy, the functions of the power apparatus have certain limitations.