Reason 2 for inadequacy of the forces of supply and demand

The second reason why the market mechanism may not serve social purpose adequately is that market forces only represent the consumer’s self interest, as expressed through his or her purchases. But the same individual himself or herself may express a different social interest if asked.

Let us take a simple example. Suppose an economist has to sit on a committee to advise the government on what the rate of duty on a good should be. He would have to consider the need of the economy and thing of the good of the other people also, not only his own. If he has to devise the rates of duty for different kinds of goods, he would no doubt do it on some social consideration.

He would not simply try to see, for example, that the goods which he himself buy get off lightly, he may even recommend that some goods that have high demand in the market may be made more difficult to buy and sell, for example, cigarettes. In short, our social consideration determine what we thing ought to be done in the matter.

However, what we thing ought to be done need not be what suits us best personally, we would want to pay as low a rate of duty as possible. We would like to see that the price of the goods that we buy is low. But out social values may still be quite different and make us recommend higher rates