Market Distortion

Market distortion as the name indicates is a definition given to a kind of disturbance in the market. The market distortion or the market disturbance occurred in the given economy when there is an intervention by the government in the market. The intervention can be done by the government due to a number of different reasons such as price ceilings, price floors, tax exemption and tax subsidies on various products and various items by the government. Market distortion is not an ideal situation infect it is a disastrous situation for the market that can result in the market failure and economical death of the market.

Whenever the government wants to intervene market the entire situation must be analyzed very carefully and clearly so that all the possible aspects of market intervention must be estimated before taking any final step. There must be a tradeoff that the market regulator must decide before letting the government to enter in the market. Although the overall impact of the market distortion or market intervention is negative on the market and economy however it may have some positive aspects such as it may have some positive influence on social welfare.

For example in order to assist peasants government can also subsidies farming activities such as providing seeds, sprays, insecticides and other related equipments at a low rate as compared to available in the market in order to encourage farming and financially assist the farmers. In addition to that sometimes government also pays farmers while purchasing wheat from them in order to create a high supply level

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