Last Updated 20 Apr 2022

Market Failure in Hong Kong

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The last two decades have witnessed the transformation of heavily government-controlled economies into various degrees and characters of market economies. Examples include the former Soviet Union, German Democratic Republic, and People’s Republic of China. These political governments have different approaches to economies and economic problems affecting their country. Even today, where democracy and federal government is almost seen in all countries, various problems related to the economy have been a witness time and time again to different tactics and strategies utilize by each government to solve these problems.

Such problems account for unemployment, high prices of goods and other forms of market failure. In today’s world, market failure dictates a big blow to an economy of a rising region. Even as we say that these “market failures” are just too small to be considered as such, all countries have been witnesses to what a small problem can deliver in time. Long run analysis of the market and short run analysis will dictate the pros and cons. A perfect example of these so-called market failures is the one happening in Hong Kong right now (or maybe already happening 4-5 years back).

According to the article written by Robin Kwong, Hong Kong is suffering a market failure due to one big serious problem. The problem is basically an ever increasing air pollution in the regions of Hong Kong. In his, article he clearly stated that the status of business and investments in Hong Kong is taking a painful blow one at time due to the worsening quality of air and increasing air pollution. This event is very critical to Hong Kong and its surrounding regions. Employment was one of the big reasons for the market failure in Hong Kong.

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Economists have assumed for many years that if the market is left to operate freely the result will be an optimal level of output. That is, the point of “equilibrium” will also be the point at which the greatest numbers of people achieve the highest level of satisfaction. Today, we can see that there are certain circumstances in which this is not true. We call these circumstances “market failures” – the time at which the market mechanism does not produce the optimal level of output. In other words, the market fails to allocate resources efficiently.

In a free market, the firm will measure the cost of production against the benefits of production mainly in terms of money. If there is an opportunity to make a profit, then the firm will commence production. However, this will not always produce the best output for society as a whole. Externalities are the side effects of production (or of consumption). They occur because the operation of the free market encourages people and businesses to look at the small scale picture, rather than a more global view. The most obvious example is pollution, but there are many more.

A negative externality occurs when the social cost is greater than the private cost. In this case, the product is said to be over-produced. This basic problem with employment alone will affect the costs of production and revenues of each business establishment and company in Hong Kong. This will conversely affect the structure of the market either analyzing it in the long run and in the short run. Day by the day, the negative effect of a shortage in employment will lead to irreversible blows in the economy and market structure of Hong Kong.

The companies in Hong Kong don’t have a choice but to increase salaries or maybe offer luxurious benefits to overseas workers just to hire them. Quality employment is one of the requirements of a successful business and if the pollution in Hong Kong continues to worsen, market failure will indeed put down the economy in the said region.

References

Beryns, R. H. , & Eriecksonn, P. F. (2007). Employment, the Economy and the Environment. Columbus, Ohio Kwong, Robin, (2007) HK admits Pollution is hurting Business. Hong Kong Financial Times.

Market Failure in Hong Kong essay

Related Questions

on Market Failure in Hong Kong

Why did Hong Kong’s market fail?

This event is very critical to Hong Kong and its surrounding regions. Employment was one of the big reasons for the market failure in Hong Kong. Economists have assumed for many years that if the market is left to operate freely the result will be an optimal level of output.

What is an example of a market failure?

A perfect example of these so-called market failures is the one happening in Hong Kong right now (or maybe already happening 4-5 years back). According to the article written by Robin Kwong, Hong Kong is suffering a market failure due to one big serious problem. The problem is basically an ever increasing air pollution in the regions of Hong Kong.

What is happening to Hong Kong’s housing market?

When the global financial tsunami hit in September 2008, Hong Kong’s housing market was already grossly imbalanced, with a mismatch in demand and supply. Owing to the city’s linked exchange rate system, low interest rates and quantitative easing in America, excessive liquidity has altered the landscape of the housing market.

What happened to Hong Kong’s housing market after the 2008 tsunami?

When the global financial tsunami hit in September 2008, Hong Kong’s housing market was already grossly imbalanced, with a mismatch in demand and supply. Photo: EPA The over-regulation of mortgages has brought undesirable side effects. Trading up is out of reach.

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