The Sources of Market Failure

The underlying cause of market failure is the situation of a free market system that hinders the most efficient allocation of economic resources. It is impossible for members of society to allocate resources more appropriately if at least one member of society does not get worse by redistributing resources to produce different ranges of goods and services. The market failure is a situation where the free market can not achieve optimal allocation of resources, which is attributable to (a) market imperfections, (b) externalities, and (c) public goods and quality goods there is a possibility.

Therefore, the production of public goods and services is usually regarded as the government's responsibility, but it is a market failure to complete competition ("Market Failure", 2007). Other causes of market failure include transaction costs and failures the organization faces. For example, if a private enterprise in a completely competitive market must face significant litigation, regulation, contract or decision-making costs, it is not possible to sell its products or services at a price that takes into account distribution or production efficiency There is sex.

The internalization of multinational corporations is aimed at reducing the market failure by replacing missing or incomplete external markets with peers of multinational corporations. One reason why the natural market fails is to overcome the transaction cost of market imperfections and the barriers of trading in all foreign markets. The higher the cost, the smaller the transaction volume. All markets face the cost of search, communication, detailed specification, negotiation, quality control, transportation, tax payment and contract execution. Because the external market can not respond appropriately to risks and uncertainties, market failure will continue. Third, if governments impose taxes, tariffs, or other forms of trade barriers, these regulations will incur additional cost to companies that reduce profits. Regulations usually have a legitimate economic objective (for example, companies that do not have cross-border trade relationships must pay these taxes)