Market Failures and Public Policy Interventions
In a market economy, goods and services are produced at a cost by the producer and sold to the consumer for a price. The good normally uses up resources such as raw material, labor, and technology, and they are all paid for. When the buyer buys the good, he or she pays the price to transfer the property right to himself or herself. Markets, therefore, function on the basis of prices and costs and are based on the concept of private property. Sometimes, in the making of a good, a by-product or waste may be created, which has adverse effects on people who are neither the producers nor consumers of the good. This third person, or society at large, has to pay a cost to mitigate the effect ...
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