Market Failures or Market Myths Influence the Environment

Running head: MARKETING
Sustainability
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Executive Summary:
The report aims at providing an insight into the aspects of market failure or market myth. Market
failure takes place when price mechanism fails to keep an account of all benefits and cost
necessary for consuming a good. The report portrays how market failures or market myths
impact environment. It also discusses the measures that can be used for preserving the
environment and the natural resources.

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Table of Contents
How Market Failures or Market Myths Influence the Environment...............................................3
Measures that Can Preserve Natural Resources and Environment..................................................4
References:......................................................................................................................................5

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How Market Failures or Market Myths Influence the Environment
In economics, externality refers to the cost or the benefit that results from transaction or
activity that impacts an uninvolved party who does not choose to act as the subject of the cost or
the benefit. Presence of externality has been the cause of the market failure. Thus, Market
failures or market myths occurs as a result of the inefficiency in allocation of goods and
resources (Tirole, 2015). This results in the failure of the price mechanism in accounting for the
cost and the benefits involved while consuming or providing a particular good. This prevents the
market from producing goods at the socially optimal level. Some of the other causes of the
market failures or market myths are as follows (Mazzucato, 2015):
 Concerns about the environment: The environmental effects and the sustainable
development.
 Absence of the Public Goods: These are goods whose production cost do not increase
depending on the consumers.
 Lower Production of the Merit Goods: These are referred as the private good that remains
under consumed by the society.
 Higher Production of the Demerit Goods: These are private goods that are over consumed
by the society and results in negative externalities.
 Abusing Power of Monopoly: Imperfect markets has been found to restrict the output
with an attempt of maximizing the profit.
The failure also spells an impact on the environment. Economic activities has been found
to negatively impact environment (Goulder, 2013). One such example is pollution. The clean-up
and the health cost due to the pollution impacts the entire society in addition to the individuals

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within manufacturing industries. Besides, the pre-industrial levels of the air pollution are causing
a depletion of the resources and preventing human beings from living in a pristine, beautiful and
a safe environment.
Measures that Can Preserve Natural Resources and Environment
Government intervention is necessary to put forward measures that might preserve the
environment and natural resources (Keohane & Olmstead, 2016). Some of the measures
includes:
 Implementation of Legislation: This involves enactment of specific laws like banning
of smoking in restaurants
 Implement Taxation: Placing taxes on specific goods for discouraging its use and
internalizing the external cost. For example, imposing ‘sin tax’ on the tobacco products
and increasing the cost of the production of tobacco will reduce pollution
 Implement Subsidies: Reduction in the price of the good based on public benefit. This
would encourage the behavior towards positive externalities thereby reducing pollution.
 Implementation of Tradable Permits: This will include permit that would allow the
firms in producing a specific quantity of products that causes pollution. It allows the
firms in trading permits with the other firms and in increasing or decreasing the produce.
This acts as an attempt in reducing pollution.
 Ensuring Extension of the Property Rights: This leads to the creation of privatization
of specific non-private goods like rivers, beaches and lakes that helps in preservation of
natural resources and prevention of pollution. Individuals are often fined for polluting
these areas.

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 Ensuring International Cooperation Amongst Government: Cooperation amongst the
governments on the issues that impacts future of environment.
References:
Goulder, L. H. (2013). Markets for pollution allowances: what are the (new) lessons?. Journal of
Economic Perspectives, 27(1), 87-102.
Keohane, M. N. O., & Olmstead, S. M. (2016). Markets and the Environment. Island Press.
Mazzucato, M. (2015). Innovation systems: from fixing market failures to creating
markets. Revista do Serviço Público, 66(4), 627-640.
Tirole, J. (2015). Market failures and public policy. American Economic Review, 105(6), 1665-
82.