Market failure occurs when market do not produce the best outcome from society

point of view. Therefore, it is necessary for government to intervene in market and

the economy.
Due to the scarcity of resources, government may reallocate resources in the
market by imposing sales tax on the sale of some goods that seem to have negative
externality on society such cigarette. However, government may provide subsidy to
suppliers in order to encourage them to produce more goods and services that
have positive externality on society such as educational services.
The government may provide legal framework and social environment to allow pm
to operate effectively such as legal status of business, contract law and consumer
protection.
Competition may be maintained by competition and consumer act.
Income will be redistributed by progressive income or the applying of price floor to
assist suppliers or price ceiling to protect the buyers.

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