Title: Market distortion - Wikipedia
Headings: Market distortion
Market distortion
See also
References

Content: More generally, a measure of distortion is the deviation between the market price of a good and its marginal social cost, that is, the difference between the marginal rate of substitution in consumption and the marginal rate of transformation in production. Such a deviation may result from government regulation, monopoly tariffs and import quotas, which in theory may give rise to rent seeking. Other sources of distortions are uncorrected externalities, different tax rates on goods or income, inflation, and incomplete information. Each of these may lead to a net loss in social surplus. In the context of markets, "perfect competition" means: all participants have complete information,
there are no entry or exit barriers to the market,
there are no transaction costs or subsidies affecting the market,
all firms have constant returns to scale, and
all market participants are independent rational actors. Many different kinds of events, actions, policies, or beliefs can bring about a market distortion. For example: almost all types of taxes and subsidies, but especially excise or ad valorem taxes/subsidies,
asymmetric information or uncertainty among market participants,
any policy or action that restricts information critical to the market,
monopoly, oligopoly, or monopsony powers of market participants,
criminal coercion or subversion of legal contracts,
illiquidity of the market (lack of buyers, sellers, product, or money ),
collusion among market participants,
mass non-rational behavior by market participants,
price supports or subsidies,
failure of government to provide a stable currency,
failure of government to enforce the Rule of Law,
failure of government to protect property rights,
failure of government to regulate non-competitive market behavior,
stifling or corrupt government regulation. nonconvex consumer preference sets
market externalities
natural factors that impede competition between firms, such as occurs in land markets
See also
Deadweight loss
Excess burden of taxation
Government failure
Imperfect competition
Land value tax
Lump-sum tax
Market failure
Optimal tax
Laffer Curve
Welfare economics
References
^ Alan Deardorff. "