Government Policy Measure On The Modifications Of Market Failure.

The negative or positive effects that an action by two “parties” in an undertaking have on the “third” party or the neighbour that is within the environment of the transaction or undertaking is termed externalities in economics. In other words, externalities are the costs or benefits of a transaction that are incurred or received by other members of the society not taking into account by the parties to the transaction. They are sometimes called “third party or neighbourhood effect”. It is indeed one of the biggest type of market failure visible in our today society, and most notably in developing countries across the world, such as Nigeria.

In summary, externalities, whether harmful or beneficiary, cause market failure; such that marginal private revenue differs from marginal social cost, causing output to diverge from its socially optimal level. The absence of property rights or what is popularly referred to as monopoly affects the Nigeria system harder than the attention it’s currently getting from relevant stakeholders who are constantly making decision about our economy. A common property resource is a resource that is owned by no one and may be used by anyone. In a situation where properties are owned by individual or corporate bodies to the extent that nobody can utilize anything without express permission of the monopolist(s), then the monopoly tendency, an integral part of market characteristics, hinders the existence of the common property right, this creating the absence of such property right overtime. It is, thus, a case of a type of market failure in Nigeria economy.

The pure and impure public goods. The pure public good relates to a situation the consumers do not have to pay any price on it in the course of its consumption, while the impure has an element of minimal price. Hence, any good for which the total cost of production does not increase as the number of consumers increases is christened public or collective consumption good. This affect the economic status of any nation in that competitive atmosphere is not maintained and people can consumes them without paying for them without paying for them and this brings about inequality between Marginal Rate of Substitution (MRS) and Marginal Rate of Technical Substitution (MRTS).

Also, since everyone is free to consume the product without paying for it, the market system will not produce efficient amount of the public good, because once the goods is produced, it is either inefficient or impossible to make people pay for its use. Another paramount issue is, huge capital outlay, indivisible project. This and many more exist in Nigeria’s market system and yet Nigeria and other international rating bodies dive towards politicizing our economy by recognizing it as the number one economy in Africa and 26th largest economy in the world ahead of Malaysia -Mirage.

Government policy measures to solve the problem of the above noted market failure includes but not limited to the following; effect of taxes and subsidies; maximum and minimum price control; production quotas; external costs and benefits; public and merit goods. If this factors are carefully considered, then Nigeria and other related nation will be closer to revamping her economy.