5. Market Failure

• Market failure is when the allocation of resources is inefficient
• partial market failure is when the market sub optimally provides a good or service leading to the over/underproduction
• a missing market is where no one has filled a gap to provide an essential product or service
• a public good is non excludable and non rival
• quasi public goods are partially excludable - e.g road tax
• social costs are made up of private costs and external costs
• private costs are borne by producers/ consumers directly involved in economic activity
• external costs are costs imposed on the third party not directly involved in the economic activity
• externalities are the positive or negative side effects of an economic activity affecting a third party not directly involved in an economic activity