Cases against the Market Regulated system (why Market fails)

1) Widespread of imperfections in the markets of developing economies:

There are 3 major widespread imperfections.

a) Lack of information results in uncertainty to producers and consumers.

b) Due to economies of scale and relatively limited size of domestic market, effective competition is lacking in most of developing countries.

c) The presence of externalities.


2) Market decisions do not ensure optimum allocation of resources.

a) Market enables individual investors to maximise the private product, not the social net marginal product. Individual investors relying on the market indicators often fail to exploit external economies.


b) Capital equipment lasts long and the individual investors with their myopic vision cannot always correct their decisions with respect to investment in them.


c) The assumption of small changes in capital is altogether unrealistic. With the extensive use of capital-intensive technology, capital’s indivisibility has considered increased.


d) Capital markets are often imperfect due to institutional and traditional aspects.
3) Market cannot ensure equilibrium between equality of demand and aggregate supply:

It is now widely known that a free economy doesn’t ensure the equilibrium between equality of demand and aggregate supply.

4) Market mechanism ignores equity.


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