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Reasons or market failure and its impacts

In Malaysia, we use mix economic to run the business in this country. The combination advantages of Free Enterprise System and the Central Command System have been used to have good management on marketing in this country. But there some cases can be evoking when the marketing management fail. Usually is call as market failure.

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What is Market Failure?

Market failure is a marketing that fail giving their resources. It usually happens when free-market begins or starts their business activity. The impacts are loss economic and social welfare rampant. Beside, when the revenue of competitive is not efficient from the side look of citizen in overall.

This thing usually due that the free-market confers on individuals or business by carrying out some particular activity diverges from the benefits to society as a whole.

Reasons the Market Fail raise.

Negative externalities:

It has been led to the production of higher social costs than private costs. For example, the competitors. The competitors want to be in the company they’ve been chasing for due to the technology.

Positive externalities:

Beneficial to the social. Its exceed the benefits of taking private consumption. For example supply of health and education. Government give a free study to poor people to study.

Insufficient information:

Demand curve is a little produced in large quantities. While a lot of the demand curve produced in small amounts. For example beverages. When a state most of them not eat vegetables but the company produce the than the citizens needed.

The private sector cannot accommodate the demand curve for the public. The solution is, the government had to intervene in people is demand.

Market dominance by monopolies:

The domination of monopoly pricing to dispelling the prices of goods on the market that causes insufficient income people each month. This situation causing sellers compete with each other about the price of goods sold by them.

Factor immobility:

It causes an increase the number of unemployed. Consequently, the more work that cannot be done. Well and unprofessional employees are increase might waste the money, time, and energy. For example, government, they hire more foreigners than local people.

Equity issues:

The equity issues happen when the market produces an ‘unacceptable’ goods or product. For example, CSL mobile phone, when first the CSL company launched people keep buying the product. Once the problem is reducing, people stop buying but the company keeps on produce the mobile phone.

Market failure result

Usually the company in a country can see the result of market failure by see the Productive and Allocate inefficiency. For productive inefficiency, the business cannot meet demand and desire for the lost output from the production because of the lack of efficient control. Consequently, a given input factor cannot be maximized by the output of the business. Next is allocate inefficiency. It occurs when the materials or goods produced in some places that are not appropriate. Not appropriate means, the items that are not needed in some areas. For example, sweater. Malaysia does not have a winter but the parties of the company keep on producing the sweater. Below show the option for the government to intervene in the foreign or domestic company.

Government Legislation and Regulation

Regulators who were appointed by the government can control the price of most of the goods to use daily for each people, such as communication line, gas, electricity and public transport. Economic state it as a move now with huge amount of regulation.

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For new competitors, often they will be introduced to the regulation as stated above. One of the examples is a telecommunication company in Malaysia; there are many that have caused a lot of competition with one another.

Direct State Provision of Goods and Services

It’s meant the government or its employees sending or supply goods and services to their customers or users. For example, about 5 or 7 years ago, TNB (Tenaga Nasional Berhad) is owned by the government. They supply electricity directly to the consumers without going through another party.

Fiscal Policy Intervention

To change the level of demand for each product is different, as is usually the relevant business operator using a physical basis. Not only does it increase the quantity of product that the people need, but it can also change the demand in the economy. It can be change through indirect taxes, subsidies, tax relief and change to taxation and welfare payment.

Indirect taxes can be change through the taxes. It affects the business by compliance, pricing, cash flows and profitability. Its also very important for the company because management is very important for them to avoid indirect taxes there and prevent from unnecessary costs. Some errors may be risks which can produce an expensive cost. Most of the clients turn to our indirect tax professionals to help them better manage and reduce their risk of indirect taxes and reduce their risk of indirect taxes. The taxes that have been collected can be used to increase the prices of the good and services.

Subsidies when the cost of daily life such as education, they will lead to the consumers that can’t be assume. In this situation, the government will provide subsidies. For example school fees. Most of the schools in Malaysia are now wholly owned by the government to assist people from the economic terms.

Tax relief is the amount of tax deduction or reduction in the amount of tax previously determined. Usually it is given to countries, region or taxpayer. This method is the most use in the country of United State. Generally, this method is required of each individual or business. It is because they want a little space to breath in financial problem. For example, for the tax payer who has lost their liability or in another word they facing the tropical storm, they may be eligible for the tax relief. Governments typically do not impose taxes directly to the customer, but depending on the flexibility of the requested price and bid price. By this reason, indirectly introduced pay tax on the market.


Rottenly the result of market failure caused by clients suffering from lack of information about the costs and benefits of the products available in the market. Government action should be taken is improve the lack of information to help consumers and producers of the ‘TRUE’ costs or benefits of a good or service. One of the examples that the government keep on doing is anti-speeding television and advertising to reduce road accident.

These programs are specially designed to change the “deemed” costs and benefits of the acquisition of customers. They did not fully affect the market price, but they are trying to influence customer demand and hence the final output and consumption.


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