Market Failure to Meet Public Needs

In a market-based economic system, it is believed that supply and demand mechanisms will naturally create efficiency and prosperity. However, in practice, the market is not always able to meet all of society's needs fairly and evenly. This phenomenon is known as market failure (market failure), which is a condition where market mechanisms are unable to allocate resources efficiently to the detriment of the public interest.

1. What is Market Failure?

Market failure occurs when the results of market activity do not reflect economic efficiency or social justice. In this situation, intervention from outside parties—usually the government— is needed to correct the distribution of resources or provide goods and services that are ignored by the market.

2. Forms of Market Failure

There are several common forms of market failure:

a. Public Goods

Markets are reluctant to provide public goods such as defense, street lighting, or city parks due to their non-rival and non-exclusive nature. This means that everyone can enjoy it without reducing other people's share, and cannot be prohibited from accessing it even if they don't pay. This discourages manufacturers from producing them because there is no profit incentive.

b. Externalities 

Economic activities often have repercussions for third parties. An example is air pollution from factories which is detrimental to public health. The market tends not to calculate these external costs, so the price of goods becomes cheaper than they should be and consumption/production becomes excessive.

c. Asymmetric Information

In many transactions, one party has more information than the other party. For example, in health insurance, the company may not know the prospective client's medical condition. This imbalance causes inefficiency and can even give rise to fraud or moral hazard.

d. Monopoly and Imperfect Competition

When one company or a small group of companies controls the market, they can set high prices, reduce quality, or limit consumer choice. This clearly harms the public and leads to inefficient resource allocation.

3. The Impact of Market Failure on Public Needs

Social inequality

This happens because the market prioritizes profits over equality. As a result, the poor have difficulty accessing basic services such as education and health because they are too expensive. Without government intervention, this inequality will continue to widen.

Environmental damage

Environmental damage is the real impact of market failure. Profit-only industries tend to ignore the environmental impact of their activities. Without strict rules, natural exploitation will continue to occur and can cause environmental crises such as water, air and climate change pollution.

Lack of essential services

The lack of essential services in remote areas is another example of market failure. As the area was considered economically unprofitable, the private sector was reluctant to invest there. As a result, people in the area have difficulty getting access to clean water, electricity and health services and education.

4. The Role of Government in Overcoming Market Failure

Subsidies and incentives are provided by the government to producers so that they are willing to produce goods or services that people need but are not commercially profitable. Examples include subsidies for renewable energy, public transportation, or agriculture. In this way, people can still enjoy important services at affordable prices.

Regulations and taxes

Usually taxes are used to control the negative impacts of economic activities, such as environmental pollution or consumption of dangerous goods. Governments can introduce carbon taxes to make companies more responsible for the emissions they produce, or ban the use of hazardous materials to protect society.

Direct provision 

the government takes on the role of primary provider of basic services such as education, health, and public transportation. This measure is important especially when the private sector is not interested in providing such services because they are considered less profitable. That way, all levels of society will still get fair access.

Redistribution policy 

Redistribution policies are the government's way of reducing social inequality by channeling wealth from the rich to the underprivileged. This can be done through social assistance, basic needs subsidies, to progressive tax systems that collect taxes greater than those with high incomes and less than those with low incomes.

 conclusion

From the description above, we can see that the market is not always able to meet people's needs fairly and evenly. Many important aspects such as education, health, the environment, and social welfare are often overlooked as economically unprofitable. Under these conditions, the role of government becomes very important to balance economic interests and interests