Market Failures and the Spanish Welfare State: A Macroeconomic Perspective

Market Failures:
The fact that each person acts in their own self-interest has negative consequences, such as social inequality and the dominance of certain companies. These negative effects are called market failures. A market failure is a negative consequence of market function that leads to inefficient resource allocation.
In short, the main market failures are:

• Instability of economic cycles
• Existence of public goods
• Externalities
• Imperfect competition
• Unequal distribution of income

Instability of Economic Cycles:
Economic cycles are fluctuations between expansion and recession phases of economic activity.
Cyclical instability is the most important market failure because it directly affects the quantity and quality of jobs in a country. During a recession, the public sector can adopt two positions:

• Non-intervention: Allowing the market to resolve the crisis itself.
• Intervention: Producing or consuming goods and services.

Free Riders:
Free riders benefit from a good or service without paying for it.

Existence of Public Goods:
Public goods are not profitable for individual investors but are beneficial for society. These are called unprofitable assets.

Externalities:
Externalities are external costs or negative externalities that an enterprise imposes on others without compensation. For example, a factory's smoke pollution decreases the lifespan of those living nearby.

The Spanish Welfare State:
The Spanish welfare state provides:

• Health: Every person is entitled to healthcare.
• Education: Education is compulsory until age 16.
• Housing: Everyone has the right to decent housing.

The Spanish welfare state offers three groups of benefits:

• Universal benefits: Offered freely to all people.
• Contributory benefits: For those who have contributed.
• Social benefits: For groups with little or no resources.

The Macroeconomic Perspective:
Macroeconomics studies the economy as a whole, while microeconomics studies the behavior of individual markets, prices, and products.
The gross domestic product (GDP) measures the monetary value of all final goods and services produced within a country during a specific period (usually one year).

Characteristics of GDP:

• Monetary pattern
• Considers only declared activities
• Refers only to the value of final goods
• Measures production within the country's borders

Methods to Calculate GDP:
There are three methods to calculate GDP:

• Measure total spending on final goods and services.
• Sum residents' income.
• Calculate the value added by companies.

External Costs:
An external cost is the cost of an economic activity that falls on people other than those involved in the activity.

Public Goods:

• Pure public goods: Goods that, due to their characteristics, can only be offered to everyone or no one.
• Impure public goods: For example, education; all students can benefit from government scholarships.