Discuss why markets may fail to generate socially desirable outcomes.

The term market refers to the group of consumers (households, firms or government) that is interested in product or service and has the resources to purchase that product. Acquiring the product and/or getting a service are always permitted by law and other regulations. The market definition begins with the total population and progressively narrows as show in the following diagram.

Market definition

Conceptual diagram

The size of the market is not fixed and depends on the product price. It is increasing while increasing the prices and decreasing while decreasing the prices. In addition, qualified markets can be increased through changes in legislation that is resulted in fewer restrictions on who can buy the product.

Market promotes competition. The competition is considered to be useful for consumers since it is providing choice, quality and very often lower prices...