Market Failures Chapter 7 Section 2

Market Failures A condition that causes a competitive market to fail. There are five main causes of market failure.

Inadequate Competition A decrease in competition tends to result in an inefficient use of resources Supply Side: Monopolies and Oligopolies Demand Side: What if the government is the only buyer for the product?

Inadequate Information If resources are to be allocated efficiently to everyone – consumers, businesspeople and government officials must have adequate information. If you want the information and it is difficult to obtain, that is a market failure.

Resource Immobility The factors of production do not always move to where they are needed most.

Public Goods The market, when left alone, either does not supply these goods or it supplies them inadequately.

Public Goods

Externalities An externality is an unintended side effect that either benefits or harms a third party not involved in the activity. Negative Externality – harms the third party Positive Externality – benefits the third party Examples?