Topic > An example of market failure - 953

Markets did not necessarily produce socially efficient quantities of goods at socially efficient prices. A firm that has market power will always produce a lower than socially efficient level of output. This is because the company can charge more than the marginal cost of production while making a large profit. In such a situation, the value to society from producing another unit of goods and services is greater than the cost of the resources needed to produce that unit and it would be a net gain to society if additional output were produced, but this will only happen with the government regulating the company's actions in an attempt to increase a minimum level of well-being and social support for all citizens. A free market did not necessarily produce efficient quantities of goods and services at efficient prices for society, which is the main reason why government is involved in market correction