1.3.1 Types of market failure

• Market failure:


  When the price mechanism leads to an inefficient allocation of resources and therefore too much or too little of a good is produced.
• Inefficient allocation of resources:


  Not making the optimum use of resources to produce the combination of goods and services that most satisfy consumers.
• Types/causes of market failure

  1) Externalities (+ve and -ve)

  2) Under-provision of public goods

  3) Information gaps (including asymmetric & imperfect info)