A market distortion is a specific type of market failure In economics, a market failure occurs when there is an inefficient allocation of goods and services in a market. That is, there exists another outcome where market participants' overall gains from the new outcome outweigh their losses . Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results brought about by deliberate government regulation which prevents economic agents from freely establishing a clearing price.
Examples:
- Prescribing a certain price (setting price caps as well as price floors A price floor is a government- or group-imposed limit on how low a price can be charged for a product. For a price floor to be effective, it must be greater than the equilibrium price) by non-market means (e.g. price regulation - cf. socialist economy Socialist economics are the economics of socialism. According to many proponents, socialist economic theories and arrangements are united by the desire to: produce for use rather than profit, achieve greater equality, give workers greater control of the means of production, use rational scientific planning to create a more effective mechanism for)
- Restricting the manufacture or importation of a certain good, which thereby restricts supply.
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