The aim of this paper is to examine why markets sometimes fail to allocate resources efficiently. As a result, the government feels they need to intervene and provide merit goods and services and public goods and services. So, different kinds of government policies can potentially improve the market’s allocation. We test the causes of markets failure, the effects of externalities which will leads to increase in cost of public goods, improvement equity in market and competitive structures. We discuss about government policies which occurs in the recent environment of economic whether in Malaysia or other countries, the effect of externalities and the effect of the government intervention. Finally, in conclusion, we conclude our views of the kinds of policies which are likely to work best and how it’s bringing the benefits that will affect the market and consumers.

MARKET FAILURE

The term of market failure is refers to a situation of the allocation of goods and services by a free market is not efficient. Market failures are often associated with information, non-competitive markets, externalities, or public goods. The existence of a market failure is often used as a justification for government intervention in a particular market. However, some types of government policy interventions, such as taxes, subsidies, wage and price controls, and regulations, including attempts to correct market failure, may also lead to an inefficient allocation of resources.