Why do traditional tools of government governance fail?

Market failure is a situation in which markets are unable to allocate goods and services efficiently. For economists, the term is usually used when the inefficiency is particularly significant, or when non-market institutions are more efficient and better able to create wealth than private options. On the other hand, market failure is also commonly used to describe a situation in which market forces fail to satisfy public **** interests. The focus here is on the mainstream view of economics. Economists use modeling theories to explain or understand this situation. The two main causes of market failure are: Inappropriate communication of costs or profit prices, which in turn affects the decision-making mechanisms of individual economic markets. Suboptimal market structure. The existence of market failures in some economies often leads to debates about whether market forces should guide operations. This, in turn, generates controversy about what to replace markets with. The most common response to market failures is for government departments to produce some goods and services. However, government intervention can also cause non-market failures. Imperfectly Competitive Markets Monopoly Monopsony Oligopoly Cartel Oligopsony Monopolistic competition Differential pricing (or differential pricing, Price discrimination) Price liposuction strategies. Differential pricing (or differential pricing, Price discrimination) Price skimming (Price skimming) The defects of the market mechanism in the allocation of resources are specifically manifested in the following aspects: (1) the unfair distribution of income and wealth. This is because the market mechanism follows the principle of capital and efficiency. The principle of capital and efficiency and there is a "Matthew effect". From the market mechanism itself, this is a normal economic phenomenon, the more capital has the more favorable in the competition, the efficiency of the possibility of improving the greater, income and wealth to capital and efficiency is also the more concentrated; On the other hand, the capitalists on the deprivation of their employees, so that some people tend to be poorer, resulting in a further increase in the distribution of income and wealth. This widening will in turn affect the level of consumption and make the market relatively smaller, which in turn affects production, restricts the full use of social and economic resources, so that the social and economic resources can not realize the maximum utility. (2) the problem of negative external effects negative external effects refers to a subject in the process of production and consumption activities, the damage caused to other subjects. Negative external effect is actually the production and consumption process of cost externalization, but the production or consumption unit for the pursuit of more profits or spreads, will let the negative external effect of the generation and diffusion. Such as chemical plants, its intrinsic motivation is to make money, in order to make money for the enterprise is best to let the factory discharged wastewater into the sewers, rivers, lakes, etc., without treatment, so that can reduce the cost of pollution control, increase corporate profits. This can reduce the cost of pollution control and increase the profits of enterprises. This will bring harm to environmental protection, production of other enterprises and the lives of residents. Society will be burdened if it wants to treat it. (3) Failure of competition and the formation of market monopoly Competition is the driving mechanism in a market economy. Competition is conditional, and generally speaking competition is launched between similar products or substitutable products in the same market. However, on the one hand, the free transfer of capital and free competition are hindered by the development of the division of labor, which has led to the widening of the differences between products, the expansion of the scale of capital and the increase in transaction costs. On the other hand, due to the emergence of market monopoly, the degree of competition is weakened and the role of competition is reduced. The main factors causing market monopoly. (i) technological progress; (ii) market expansion; and (iii) mergers by firms to obtain scale effects. As soon as the profitability of a firm depends on its monopoly position, competition and technological progress are inhibited. (4) Unemployment Unemployment is the main consequence of the role of the market mechanism, on the one hand, from the micro point of view, when the capital in pursuit of large-scale operations to improve production efficiency, labor is machine excluded. On the other hand from the macro point of view, the cyclical changes in the operation of the market economy, the instability of the demand for labor, but also the need for the existence of an industrial reserve army to meet the need for new labor when production is high. Unemployment of laborers satisfies the need for the operation of the market mechanism from both the macro and micro perspectives, but the existence of unemployment is not only detrimental to the stability of the society and the economy, but also does not meet the need for capital to pursue an ever-expanding market and consumption. (5) The problem of regional economic incoherence The role of the market mechanism will only expand the phenomenon of imbalance between regions, and the more favorable the development of some regions with superior economic conditions and a higher starting point for development. With the development of the economy of these regions, the quality of the labor force, the level of management, etc. will also be relatively high, can be paid to be used in the price of resource factors is also high, but also the more able to attract high-quality resources of all kinds, in order to develop the local economy. Those backward areas will also be due to the loss of quality factors necessary for economic development and more backward, the regional economic gap will widen. Again, because different regions have different interests, the use of natural resources in different regions will also be mutually detrimental to the problem, can be called the negative externalities of regional economic development: the upper reaches of the river areas of excessive exploitation of forests and trees may affect the safety of the residents of the downstream areas and economic development. This phenomenon creates an uncoordinated and harmful inter-regional economic development. (6) Insufficient supply of public **** products Public **** products are products that are non-exclusive and non-competitive in the consumption process. The so-called non-exclusivity also means that as soon as this kind of product is produced, the producer cannot exclude others from paying the price of consumption. Because this exclusion, on the one hand, is technically impossible, but on the other hand, it is technically possible, but the cost of exclusion is higher than the benefit of exclusion. Non-rivalry is so-called because for the producer, one more consumer and one less does not affect the cost of production, i.e. the marginal cost of consumption is zero. And for consumers who are consuming, as long as there is no congestion it will not affect their consumption level. These products such as national defense, public security, beacon lights, street lights, television signal reception. So these products are also called non-profit products. In essence, the production of public **** products and the role of the market mechanism is contradictory, the producer is not active production of public **** products. Instead, public **** products are products that must be consumed by all members of society, and their fulfillment status also reflects the welfare level of a country. In this way the contradiction between the lag in the production of public **** products and the needs of the members of society and economic development is very sharp. (7) Transitional use of public **** resources Some production depends mainly on public **** resources, such as fishing by fishermen and grazing by herders. Their use is to rivers and lakes and these public **** resources as the main object, this kind of resources are both technically difficult to classify the attribution, but also in the use of the inappropriate to clarify the attribution. Because of this, as producers are driven by the market mechanism to maximize profits, they tend to use these public **** resources in a predatory manner, without being able to give the resources a respite. Sometimes, even though users understand that the protection of long-term interests requires the rational use of public **** resources, the market mechanism itself fails to provide institutional norms, and fear of excessive use by other users, blind competition in the use of. There are many other manifestations of market failure, which requires a scientific understanding of the role of the market mechanism. Causes of market failure 1, public **** products. Economic and social production of products can be roughly divided into two categories, one is private goods, one is public **** goods. Simply put, private goods are goods that can only be used for personal enjoyment, such as food, housing, clothing and so on. Public **** goods, on the other hand, are goods that can be enjoyed by members of the community **** together. Public **** goods in the strict sense are non-rivalrous and non-exclusive. Non-competition means that one person's enjoyment of a public **** good does not affect another person's enjoyment, and non-exclusivity means that there is no charge for the enjoyment of a public **** good. For example, national defense is a public **** good. It brings security to the people, citizen A enjoys the national security will not affect citizen B's enjoyment of national security, and people do not need to pay to enjoy this security. 2. Monopoly. Some degree of (e.g. oligopoly) and complete monopolization of the market cannot make the allocation of resources inefficient. Correction of this situation requires reliance on government. The government mainly through the market structure and enterprise organizational structure of the intervention to improve the economic efficiency of enterprises. This intervention belongs to the government's industrial structure policy. 3. External influences. Market economic activities are based on reciprocal transactions, so the interests of people in the market are essentially money-related interests. For example, if A provides goods or services to B, A has the right to ask B for compensation. When people engage in such economic activities that require the payment or acquisition of money, they may also have a number of other effects on other people, which can be either beneficial or harmful to them. However, whether beneficial or harmful, they are not part of the transactional relationship. These effects on others that are outside the transactional relationship are labeled as external effects, also known as the externality of economic activity. For example, a factory built next to a river discharges wastewater that pollutes the river to the detriment of others. The factory discharges the wastewater in order to produce a product that earns money, and the relationship between the factory and the customers who buy its products is one of exchange of money, but the factory may not have to pay any compensation to others for the resulting damage. Such impacts are the external effects of the factory's production. When the impact is harmful to others, it is called externally diseconomical. When it is beneficial to others it is called externally economic. For example, the flowers you place on your balcony may bring external economies to people passing by. 4. Asymmetric information. Since the participants in economic activities have different information, some people can take advantage of the information to commit fraud, which can harm the transactions of political parties. When people's fear of fraud severe punishment affects the trading activities, the market's role of political parties will be lost, the market allocation of resources is also out of order. At this time, the market generally can not completely solve the problem by itself, in order to ensure the normal functioning of the market, the government needs to develop some regulations to stop and restrain fraudulent behavior.