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A guide to understand Blockchain’s economic significance.

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To comprehend the reasons behind Government’s intervention during a market inefficiency, it is important to understand what a market failure is.

Market failure:

“A Market failure is an economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers.” The unstable market thus, leads to inefficient results and hence, the government interferes in all it’s dealing to find a satisfactory solution. According to statistics, Education, health and hygiene, housing areas are important fields of market analysis where chances of market failure are higher. It is a common belief, that government ‘s intervention is found to worsen the problem to a higher degree and create huge misallocation.  The central planning that is imposed to the market inefficiency is found to bring a state of complete instability and leads to economic ruin.

 

Although, Government’s interference in times of market failure is criticized by many, government proponents state that there is a need of minimal assistance to come up to a uniformity of decision.

Common Market Failures:

  • Monopolies :

The monopolist, being the sole supplier of  product goods, without the support of any other substitutes, can either raise the market price above average or decrease so much that it creates scarcity. Barriers to entry and exit in the industry, are low and the rise or fall of one firm does not adversely affect the others. Market power is low for all the firms and the demand is dependent on the prices.

  • Asymmetric Information
    When the seller possesses more information than the buyer , the situation is said to be of Asymmetric information. To ensure that the medicine composition, proportions of ingredients in Cosmetic products or the coherency of food composition is maintained, Food labelinging laws, FDA approvals and the SEC has been imposed by the government to help sort out the market failure.
  •  Negative Externalities
    These conditions arise when unrelated parties fail to perceive the interest of all and third parties become the sole sufferers. Negative Externality is a cost that is suffered by a third party as a result of an economic transaction.
  • Non-Excludable Public Goods
    The term Non-Excludable means that the goods or the service cannot be abstained from use. Since, one cannot be stopped from using the service, people opt to derive it’s benefits for free of cost. Hence,  there has been decisions to not generate the beneficial public goods.

Since, a gist of the economic terms are now understandable to you, the need of blockchain in curing the market failures need to be discussed. Blockchain being a decentralized ledger, could allow more freedom, less chances of inefficiency and more productive allocation of resources.

Blockchain on Monopoly and Asymmetric Information:

Monopolies need a barrier to check entry and exit to the Industry. Blockchain can besiege regulations and create a pressure zone within the technology. The best example of this has to be Uber or Ola applications. Blockchain on the other hand can verify whether asymmetrical information is conveyed by the seller. It can act as the bridge between the seller and the buyer before the safe exchange occurs. Transparency of prices, less illegalities are some of the plus of ensuring blockchain as an interlude between the first and second parties.

Blockchain on Externalities and Public Goods:

The lack of a market allows conditions like Negative Externalities to arise. It is also  a common phenomenon when weak property rights are in the market. Blockchain can solve this problem easily if proper ‘track and record’ is ensured. Blockchain contracts can allow the creation of public projects with more choices for consumer. Corrupted projects can be controlled and efficiency will prevail. The more the people that join the public project, the less the per person contribution will be.

Conclusion :

Blockchain is the key to enlighten a corrupt free, easily accessible market standard which will prove government’s inefficiency in dealing with market failures. The traditional market failures can easily find a solution with the implementation of blockchain technology. It not only will increase the choices but also lessen the chances of scarcity.

It’s high time that the corrupt, traditional norms are scraped out and a more productive solution is taken to use.The only possible response to unriddle this problem,  is Blockchain.

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