Why might the market not achieve equity naturally?

The market may not achieve equity naturally due to factors such as market failures, income inequality, and imperfect competition.

Market failures are a significant reason why the market may not naturally achieve equity. Market failures occur when the allocation of goods and services by a free market is not efficient. This inefficiency can lead to a lack of equity as some individuals or groups may end up with a disproportionate share of the goods or services. For example, public goods like clean air or national defence are non-excludable and non-rivalrous, meaning they are available to all regardless of whether they pay for them or not. This can lead to the 'free-rider' problem where some individuals benefit without contributing, creating inequity.

Income inequality is another factor that can prevent the market from achieving equity naturally. In a free market, individuals earn income through the sale of goods, services, or labour. However, not all individuals have the same opportunities or abilities to earn income. Factors such as education, skills, physical ability, and discrimination can lead to significant income disparities. These disparities can result in a lack of equity as those with higher incomes can afford to purchase more goods and services, while those with lower incomes may struggle to meet their basic needs.

Imperfect competition can also hinder the natural achievement of equity in the market. In a perfectly competitive market, there are many buyers and sellers, and no single buyer or seller can influence the price. However, in reality, many markets are characterised by imperfect competition, where some firms have more market power than others. This can lead to inequity as these firms can influence prices to their advantage, potentially at the expense of consumers or other firms.

Furthermore, externalities, or the indirect costs or benefits of a transaction that affect third parties, can also prevent the market from achieving equity. For example, a factory that pollutes the air creates a negative externality that affects the local community. If the factory does not bear the cost of this pollution, it is effectively being subsidised by the community, creating inequity.

In conclusion, while the market mechanism is a powerful tool for allocating resources, it does not always lead to equity. Market failures, income inequality, imperfect competition, and externalities can all prevent the market from achieving equity naturally.