Most introductory economics textbooks have a section on “market failure.” It is

Question

Most introductory economics textbooks have a section on “market failure.” It is here that students learn that markets may fail to achieve their potential – leaving people worse off than they theoretically could be. The existent of market failure is often taken as an excuse for government intervention to do whatever markets fail to do. In just a couple of sentences, explain why economists (and others, particularly politicians) must accept the possibility of “government failure” as well?  That is, tell me why government solutions to perceived market “failures” may themselves fail to achieve their own stated goals?  The U.S. Drug war is an apt example of a discrepancy between a stated political policy goal and the actual attainment of that goal?

Explanation / Answer

The structure of market systems contributes to market failure. In the real world, it is not possible for markets to be perfect due to inefficient producers, externalities, environmental concerns, and lack of public goods. An externality is an effect on a third party which is caused by the production or consumption of a good or service. Market failure occurs due to inefficiency in the allocation of goods and services. It can be because of anything. It may be due to some externality or some discrepancy. Sometimes it's because government fails to impose laws and regulations properly and also because it fails in efficient provision of public goods.

The United States has focused its efforts on the criminalization of drug use.  The government has, to no avail, spent countless billions of dollars in efforts to eradicate the supply of drugs.  Efforts of interdiction and law enforcement have not been met with decreases in the availability of drugs in America.  Apart from being highly costly, drug law enforcement has been counterproductive.  Current drug laws need to be relaxed.  The United States needs to shift spending from law enforcement and penalization to education, treatment, and prevention.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.