Market Distortion
Definition of 'Market Distortion'An economic scenario that occurs when there is an intervention in a given market by a governing body. The intervention may take the form of price ceilings, price floors or tax subsidies. Market distortions create market failures, which is not an economically ideal situation. |
|
Investopedia explains 'Market Distortion'There is a tradeoff that regulators must make when deciding to intervene in any given marketplace. Although the intervention will create market failures, it is also intended to enhance a society's welfare.For example, many governments subsidize farming activities, which makes farming economically feasible for many farmers. The subsidies paid to farmers create artificially high supply levels, which will eventually lead to price declines if the goods are not subsequently purchased by the government or sold to another nation. Although this type of intervention is not economically efficient, it does help ensure that a nation will have enough food to eat. |
Related Definitions
Articles Of Interest
-
Explaining The World Through Macroeconomic Analysis
From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone. -
Understanding Supply-Side Economics
Does the amount of goods and services produced set the pace for economic growth? Here are the arguments. -
What are the economic implications of government subsidies on fuel costs?
In order to make the price of oil more affordable to its citizens, governments sometimes provide subsidies, which can allow the price of oil to remain fixed below free floating market rates. ... -
Economic Indicators To Know
The economy has a large impact on the market. Learn how to interpret the most important reports. -
The Federal Reserve
Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy. -
Leading Economic Indicators Predict Market Trends
Leading indicators help investors to predict and react to where the market is headed. -
Great Company Or Growing Industry?
Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth. -
Prisoner's Dilemma
Learn more about this classic game theory scenario. -
Is Growth Always A Good Thing?
Getting big quickly looks good, but companies can get into trouble when they do it too fast. Find out how to spot this trouble. -
What Is "Chained CPI?"
Chained CPI is one of many ways to approximate the impact of rising or falling prices to consumers' pocketbooks.
Free Annual Reports