Causes of Market Failure (Why it happens)
Externalities
Negative: Harm to others (e.g. pollution from a factory).
Positive: Benefits to others (e.g. your education helps society too).
Public Goods
Things like street lights or defense – they’re free to use and can’t be sold easily, so private businesses don’t want to provide them.
Merit and Demerit Goods
Merit goods: Things like education or healthcare – people don’t use enough of them.
Demerit goods: Things like cigarettes – people use too much, even though they’re harmful.
Monopolies (One big seller)
When one firm controls the market, they may charge high prices and offer less choice.
Lack of Information
If people don’t have enough info, they may make bad choices (e.g. eating unhealthy food thinking it’s good).
Immobility of Resources
When workers or machines can’t move where needed, resources go unused or wasted.
Consequences of Market Failure (What happens)
Wasted resources – things aren’t used in the best way.
Pollution or harm to others – especially with negative externalities.
Too much or too little of a good – like too many cigarettes, not enough hospitals.
Unfair outcomes – some people get rich, others stay poor.
Government has to step in – with taxes, rules, or help.