Market Failure and Causes

Market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Examples of market failures include monopoly power, externalities, and imperfect information.

Monopoly power refers to producers' discretion in setting prices, resulting in higher prices, increasing profits at the expense of consumer welfare. Consumers lose more than producers gain, leading to a net loss of total welfare.

Corrective measures may include antitrust actions such as breaking up existing monopolies, preventing monopolistic practices like bundling and tying arrangements, price discrimination, and predatory pricing, as well as preventing mergers that reduce competition and collusion.

<p>Externalities are costs or benefits caused by one economic agent but borne by another. They contribute to market failure by distorting the efficient allocation of resources and leading to a net loss of economic value.</p> Signup and view all the answers

<p>Examples of externalities include pollution, traffic congestion, and noise. They impact market efficiency by causing a misallocation of resources, leading to a net loss of economic value and a failure to achieve Pareto efficiency.</p> Signup and view all the answers

<p>The term 'Indemnity' means 'Making Somebody Safe' or 'Paying Somebody back', as defined in Section 124 of the contract Act.</p> Signup and view all the answers

<p>The important features of an indemnity contract include two parties, promises for compensation of loss/damage, creation of liabilities, faith, all essential features of a valid contract, and compensation for actual loss/damage. It may be express or implied.</p> Signup and view all the answers

<p>The party who gives indemnity or promises to compensate for the loss is called the indemnifier, and the party for whose protection or safety the indemnity is given, or the party whose loss is made good, is called the indemnified or indemnity holder.</p> Signup and view all the answers

<p>The rights of the indemnified include the right to claim for all damages/losses, claim for all costs related to the contract, and claim for all sums which may have been paid for the contract.</p> Signup and view all the answers

<p>The liabilities/duties of the indemnified include the liabilities to pay all damages/losses, pay all costs related to the contract, and pay all sums received by self for the contract from the indemnifier.</p> Signup and view all the answers