QUALIFICATIONS

Our analysis of the market mechanism has described . the unremarkable efficiency properties of competitive markets. But be warned: Every economy on earth is a mixed economy. combining private markets with elements of government intervention, Why do market-oriented countries still rely 011 interventions? Then’ are two reasons. First, efficiency may be hard to achieve in situations where pollution or ‘other externalizes are present or when there is imperfect competition. Second. the distribution of incomes under competitive markets, even when they are efficient, not be socially desirable or acceptable. We will review the issues concerning the distribution of income ill Chapter 12.

But it will be useful to examine more carefully here inefficiencies raised by market failures.

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