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Market failures
Market failures can be defined as failures in the market mechanism in allocating resources for social interest.
*Consist of 3 main aspects.
1.Inefficient allocation of resources
2.Unfair distribution of resources
3.Macro economic instabilities
Inefficient Allocation of Resources & Unfair distribution of resources.
*IAR
Arisen due to weakness of price machanism.
(eg : Arising externalities, Factor immobility, Missing markets, Production of demerit goods, Over utilization of common property resources )
*UDR
Inequality in distributing income and wealth among households.Or disparity in income distribution.
Macro economic instabilities
*Instabilities arisen in macro economic variables due to fluctuations of aggregrate demand are known as Macroeconomic Instabilities.
*It's an intrinsic element of a market economy.
Examples
*Fluctuations of GPL
*Fluctuations of interest rate
*Fluctuations of foreign exchange rate
*Instabilities of BOP
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