Understanding Market Failure

Front

Market Failure

Back

Inefficient allocation of resources

Front

Externalities

Back

Costs or benefits affecting third parties

Front

Public Goods

Back

Non-excludable and non-rivalrous

Front

Free Rider Problem

Back

Benefiting without paying

Front

Monopoly Power

Back

Single seller dominance

Front

Negative Externality

Back

Harmful effect on third parties e.g. pollution

Front

Positive Externality

Back

Beneficial effect on third parties e.g. enjoying your neighbour's garden.

Front

Merit Goods

Back

Under-consumed, beneficial goods

Front

Demerit Goods

Back

Over-consumed, harmful goods

Front

Government Intervention

Back

Correcting market failures