Market Failure
Definition of Market Failure:
This occurs when there is an inefficient allocation of resources in a free market. There are many different types of market failure:
- Externalities (positive and negative)
- Merit and De merit goods
- Public Goods
- Monopoly Power
- Inequality
- Factor Immobility
- Agriculture
Key Terms in Market Failure
- Externalities: These occur when a third party is affected by the decisions and actions of others.
- Social benefit: is the total benefit to society =
Private Marginal Benefit (PMB) + External Marginal Benefit (XMB) - Social Cost: is the total cost to society =
Private Marginal Cost (PMC) + External Marginal Cost (XMC
Definition of Social Efficiency: This occurs when resources are utilised in the most efficient way.
This will occur at an output where social marginal cost (SMC) = Social Marginal Benefit. (SMB)
Essays and Revision Notes on Market Failure
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