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Distortion

Distortion is a phenomenon that can be noticed everywhere in every from of life. When the natural regular shape of any thing or person changes drastically then the resultant phenomenon is termed as distortion.

Distortion in economics is a condition that results in the creation of economic insufficiency. The economic insufficiency is the resultant of many factors. Economic system is termed insufficient and inefficient when it cannot provide the society sufficient goods and services even after maximum utilization of all the available resources.

Distortion is measured by monitoring the deviations between the market prices of the goods and their marginal costs. If we elaborate it further it is the gap between the marginal rate of substitution in consumption and the marginal rate of transformation in production. The deviations are due to many factors like import quotas, tariffs, monopoly and government regulation giving rise to rent seeking behavior.

The other sources of distortions include different types of income or goods, incomplete information, inflation and uncorrected externalities. Any of them may lead to consumer surplus net loss. In the case of perfect competition along with the idealized conditions the distortion rate is at zero with the market equilibrium of demand and supply.

Distortion is also known, as market imperfection is a condition that is the resultant of economic inefficiency. This can also be termed as failure of markets. This is the situation where usage of services and goods and even their production is not efficient. The failures are often and usually associated with public goods or externalities and non-competitive markets. Most of the economists and financial experts are often concerned with the causes of market failure and the steps and possible means to correct them as and when it occurs.

Many people, financial experts and reputed economists feel that credits and deductions, special tax exemptions are the major factors that lead to economic distortion. But no one is yet clear about what factors lead to economic distortion. Market or economic distortion is a scenario that results when a governing body intervenes in the market and controls it’s functioning. The intervention by the governing body of the government may be in the form of tax subsidies, price floors or price ceilings.

Market distortions results in the creation of market failures that effect the economy in a real bad way, which is not an ideal economic situation. But experts feel that even though some interventions by the governing body results in market failures, they are intended to enhance the welfare and well being of the society.

The best example is the government giving agricultural and farming subsidies resulting in the feasibility and accessibility of the farming activities for the benefit of the society. Some times the subsidies to the farmers’ results in high and increased levels of production bring down the price levels when the agricultural products are not purchased by the government or other nations across the world.

One should decide whether market distortion is helpful or harmful to the society in the long run.

Tags: credit, deduction, Economics, government, Income, market, price, tax

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