Market Failure

• Market Failure


  When resources are inefficiently allocated, resulting in goods and services being overproduced, underproduced or having impact on those not involved with the product at all
• Externalities


  When the production or consumption of a specific good or service impacts a third party that is not directly related to the production or consumption of that good or service
• Positive externalities


  • A third party benefits from a good or service that he or she did not consume or produce
• Negative externalities


  • A third party suffers from harm or potential lost from the production or consumption of a good or service
• Merit goods


  Goods which are produced on the basis of need, usually provided by the government, and include essential services like education, health care, defence and waste disposal
• Public goods


  Goods which are produced for the benefit of every citizen
• Non-excludability


  • You cannot stop a person from using or benefiting from the good even if they haven't paid for it
• Non-rivalrous


  • One person using the good does not mean another person cannot use it
• Monopolies


  A monopoly fails to achieve economic efficiency because they produce a low quantity of goods and sell them at high prices in order to maximize profits
• How do Monopolies represent Market Failure?

  This represents market failure as too few people are able to acces the good.
• How does Market Failure occur in Merit Goods?

  Market failure occurs when these goods are either underproduced or overproduced.
• How does Market Failure occur in Public Goods?

  Market Failure occur with public goods because of free rider problem. This problem exists because as people are aware that they can benefit without paying so less people actually pay for the good.