A market distortion is a specific type of market failure In economics, a market failure exists when the production or use of goods and services by the market is not efficient. That is, there exists another outcome where market participants' total 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. In order 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 is a broad, and sometimes controversial, term. A normative definition held by many socialists states that all socialist economic theories and arrangements are united by the desire to produce for use rather than profit, achieve greater equality, give the workers greater control of the means of production and create a more)
- Restricting the manufacture or importation of a certain good, which thereby restricts supply.
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