Sample Economic Essay Paper on Market Failure

Market Failure

In most cases, market failure is usually considered as the lack of an efficient flow of goods and services in a free market. There are some factors that affect the market such as competition, monopoly and efficiency. A monopoly is a market structure that only has one seller and many buyers, with no close substitutes as well as barriers that prevent potential competitors into the market. Through a monopolistic market structure, consumers would be having limited options for the products being produced by the firm. This is because the firm will only be able to produce what they think the customers want and in what commodities. However, through monopolies, the firms would decide how high they would want to sell their products for since consumers will not be having other options.

Competition is also another factor that could affect a market. If a market has a number of similar business or business offering products that could be substitutes of the products a firm produces, therefore the level of competition in that market will be high, and the more a firm understands what the consumers wants and modifies their products, the longer they could stay in the market. High competition in markets usually creates easy exist from the market by competing businesses.

Market efficiency is the level of how the market operations, such as the level of demand and supply of products and services in a market. These factors could be low due to the level of competition in a market.

These factors affect the economy at large, both the microeconomics and the macroeconomic aspects. It is believed that most state owned businesses are usually associated with inefficiency, poor management and decision making, losses, poor productivity, and poor organization structures. However, through privatization of businesses, efficiency and competition in the market is promoted, thus ensuring business participants offer the best quality of their goods and services, meaning also technology by businesses will be embraced (Tisdell and Hartley, 2008, p. 259). It is through these forces in the market that the society will develop, since suppliers will ensure that they produce the best where consumers can choose from. Through creating a natural monopoly, the competing firms in that market will need to ensure that they apply quality in production of their goods and services, for them to remain relevant. Therefore, through this there will be a standard level of pricing of would be fair and will not exploit the consumers in the market (Besanko, 2011, p. 472).

However, from the study of market efficiency it is clear that the forces of demand and supply are the major consideration of resources in a firm are allocated to compete with other firms (Mankiw, 2014, p. 150). Therefore, firms only supply goods in relation to its demand in a certain area fro a certain period of time, just as the law of demand entails. Unlike, monopolies who tend to fail in business operations due to lack of considering the law of demand, where the price of a commodity is determined by a firms revenue and cost (Jain and Khanna, 2008, p. 245).

Macroeconomics is a branch of economics that mainly considers the performance, structure, and behavior of an economy, unlike microeconomics, which studies and focuses on the behavior of individuals and medium business organization that have an impact on decision making of allocations. However, through understanding the aspect of the microeconomics from the article, it enables one to understand about the need of being self interested in business operation around a certain area, to ensure the allocation of the available resources are well distributed, for one’s benefit and the society. Apart from this, understanding microeconomics in relation to this article, gives a better platform for decision making by groups and individuals on how effective they can use their limited resources (Tewari and Singh, 1996, p. 7).

From the article however, one is able to see the how understanding macroeconomics can be a benefit for their businesses, or for the organization they work for. This is because, macroeconomics usually involve analyzing the economy as a whole, and would help one understand what consumers in a certain period are willing to acquire by parting with some money, and the business could however, invest in such activities to acquire some more profits fro their organization. Understanding the economy also allows business organizations to adapt to new trends and activities that would benefit the organization’s performance. For instance understanding of new technologies that can be applied by business to get more profits and more clients, for example the use of internet marketing or advertising (Jain, Ohri and Majhi, 2010, p. 4).

Business therefore should ensure that they take into respect all activities that take place within the organization, in order for the business organizations to understand the affecting issues of the organization as well as of the society. Through this, they will be able to come up with decisions that would help the business to remain competitive in the market and less affected by coming situations such as economy inflation.






Besanko, D., Braeutigam, R. R., & Gibbs, M. (2011). Microeconomics. Hoboken, NJ: John Wiley.

Jain, T. R., & Khanna, O. P. (2008). Business economics. New Delhi: V K Publications.

Jain, T. R., Ohri, V. K., and Majhi, B. D. (2010). Principles of Macroeconomics. FK Publications: New Delhi.

Mankiw, N. (2014). Principles of Economics. Cengage Learning: Stamford CT.

Tewari, D. D., & Singh, K. (1996). Principles of microeconomics. New Delhi: New Age International (P) Ltd.

Tisdell, C. A., & Hartley, K. (2008). Microeconomic policy: A new perspective. Cheltenham, UK: Edward Elgar.