Market Failure

  • The market fails to deliver what is expected.
  • This in turn is a signal for government intervention.
  • Resources are not used as best as possible.
  • Private firms in the market economy decide what, how and for whom to produce by only looking at private costs and benefits.
  • We are focusing on three examples of market failure :

1.Where there are externalities present in a market.

2.Where merit goods have to be provided because the market will fail to provide them.

3.Where public goods are provided by the government, again because the free market will fail to do so.

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