Market Failure 2020-01-24 08:00:00

Market Failure

A market failure is created when there is a mismatch between supply and demand. For example, there might not be enough supply to meet demand and vice versa. This mismatch is generally created by external events that are outside of efficient market operations. Some trigger points might be monopolies, government policies, market information breakdowns, and supply chain breakdowns (impairment of input mobility).

An example of a market failure is a rise in minimum wages, which increases operational costs for businesses. Due to this increase, businesses hire fewer people, creating an artificial supply shortage. However, there are still plenty of laborers seeking jobs. There is now a mismatch between supply and demand.

 


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