Interpretation of the Effects of Divergences

Divergences include two types of influences that cause the economy to use its scarce resources inefficiently so that it does not create the highest possible levels of income. One type is caused by government policies that distort the pattern of production, moving it away from the most efficient use of domestic resources and international trading opportunities. Governments usually enact distorting policies to favor particular interest groups or because they are consciously trading off the consequent efficiency losses against their perception of such nonefficiency gains as changes in income distribution and improvement in the countries' ability to feed themselves. The second type of influence arises because certain markets fail to bring about an efficient allocation of goods or services. Market failures are usually far more prominent in factor markets than in product markets.