• Market failure happens when the free market, operating on its own, fails to allocate resources efficiently

• Market failure causes economic failure and fails to produce the best outcome for the economy and the society

Types Of Market Failure

• Public Goods Conflict

• Externalities

• Monopoly Power

  
  

Public Goods Conflict

• Public goods impact people and the economy equally as they are used for common purposes

• Example of public good -: schools, hospitals, roads and etc

• Firms target for profits and public goods dont give them profit making it a crisis in the free market economy

Externalities

• There will be external costs for market failure which makes it a problem

• Externalities can be good and bad

• Market failure causes bad externalities due to the failing price mechanism

Monopoly Power

• When a firm dominates the market, it can charge high prices and limit output.

• This reduces consumer surplus and creates deadweight loss.