What Causes Market Inefficiency Assignment Example | Topics and Well Written Essays - 250 words

What Causes Market Inefficiency - concession ExampleThe pursuance situation may come before the market mechanism in not principal to the most efficient output and market will fail. These situations can be classified under the following headThe examples of externalities are, suppose that a person is suffering from a contagious disease. He considers that by spill to a doctor, his costs will be the fees paid to doctor and benefits will be the cure of the disease. However, he will not take into account the fact that if he does not go to the doctor, different pack might catch the same disease. This will result in less-urgency for him to go to the doctor. This shows how ignorance of ban externalities can lead to over production or irrational response. Now, lets look at the example of negative externality in the context of a business or economic decision. Suppose you want to procure a car. The main consideration for the purchase will be the cost of the car and possible benefits at tain from the car. However, market mechanism will ignore the impact of car purchase on the environment and other parties such as pollution, road congestion and accidents. This ignorance may tempt you into purchasing the good and hence on that point will be an over-production of good due to negative