The failures of the market and the role of the state in the development of the economy

The failure of the market is a consequence of the imperfection of market instruments and institutions. In this case, the inability of these components to satisfactorily solve social and economic issues that are important for society. If for some reason the main elements of the market mechanism when working in an autonomous mode do not provide public effectiveness, then in this case there is a need for government intervention in the development of the economy. The fiasco of trade relations is said in the case when they do not contribute to the rational distribution and use of resources.

Market failures are obstacles that prevent the economy from achieving public efficiency.

As a rule, there are four ineffective situations. They point to market failures. These include imperfect (asymmetric) information, monopoly, public goods, external effects.

It should be noted that the market is not able to lead to public efficiency in the event that the activities of some consumers or producers affect the welfare of other people. When this influence is positive, then there are external benefits. If the impact is negative, then external costs are formed. They, in turn, are associated with the production of some good. Public costs include private spending and the externalities of production.

As a rule, when market failures occur, the state enters economic relations. The solution of problems is carried out by means of various means. Thus, the state pursues an antimonopoly policy, restricts the manufacture of products with negative external effects. At the same time, production and consumption of economic benefits with positive effects are stimulated.

These directions of state activity are to a certain extent the lower limit, according to which there is interference of the authorities in the market. However, today the state has broader economic functions and is able to more effectively eliminate market failures. Among the main functions of the authorities can be noted the following: the introduction of unemployment benefits, the development of infrastructure, the establishment of different types of benefits and pensions for low-income citizens and others. At the same time, it should be noted that a small number of these events have the properties of exclusively public goods. Most of them are not intended for collective but for individual consumption.

The state, pursuing an antimonopoly and anti-inflationary policy, seeks, mainly, to reduce unemployment. The authorities have been taking an active part in managing structural changes, stimulating and supporting scientific and technical progress, trying to maintain a high level of development and the national economy. Together with external economic and regional regulation, these measures point to the importance of the role of the state in the economy. During the 20th century, the power apparatus strived to effectively solve two problems interconnected with each other. First of all, the state tried to ensure stable operation of the market. Secondly, the government apparatus tried, if not to solve, then to alleviate acute social and economic problems. All these actions were aimed at preventing market failures.

At the same time, as many analysts note, the rapid growth of state regulation can not continue uninterruptedly. Thus, in a market economy, the functions of the power apparatus have certain limitations.