According to Wikipedia, there are three main causes of market failure: externalities, monopolies and non-excludability. Externalities refer to a situation where the activities of an entity generate side effects for which the entity has made no provision. One example of an externality is pollution generated as a side effect of vehicle operation. Without measures such as road tolls, most people would operate vehicles without regard for the pollution they generate.Know More
Another example of an externality is the pollution that is the side effect of industrial activities. Without taxes, regulations and similar measures, there would be little incentive for industries to make provision for the side effects of their activities, despite their negative effect on others. The concept of externalities is used to justify the intervention of governments and other overarching organizations in market operations, according to David Pannell of the University of Australia. Failure to enact regulations would result in the general society bearing the cost of negative side effects and offenders failing to pay for the cost of their operations. Such offenders could then sell their products at lower prices than they should.
Another cause of market failure is non-excludability. This refers to a situation where individuals or organizations cannot stop non-buyers from obtaining certain products or services. Such products or services are said to display the attributes of public goods. One example is open-source software. Creators of such software cannot stop others from using or even modifying their creation. If the situation is inadvertent rather than deliberate, it would result in underinvestment in the particular product or service.
Monopolies refer to a situation where an entity or a small group of entities gain excessive market power. Monopolies are an excellent example of market failure. Other causes of market failure include the uneven flow of information and lack of property rights, according to the University of Melbourne.Learn More
The stock market is a market where an investor can buy or sell shares. Companies that want their shares to be traded by the public usually list them on a stock exchange, such as the New York Stock Exchange. To trade in stocks listed on a stock exchange, an investor must open an account with a brokerage firm, which acts as his agent.Full Answer >
The Dow Jones Industrial Average consists of stocks from 30 industrial companies that combine together to form an average indicator of the market as a whole. The group comes from a representative sample of companies including communications, technology and transportation.Full Answer >
A three-for-two stock split is defined as a corporate more to increase the number of stock shares on the market by giving shareholders three shares of stock in exchange for every two shares held, according to Investopedia. The split shares retain the same total stock value as before.Full Answer >
An inverse ETF is an exchange-traded fund that allows an investor to profit when the market takes a downturn. An inverse ETF moves in the opposite direction of the market index on which it is based.Full Answer >