Market Failure – Brief Slides

A satiric picture of how free markets can result in failed markets.

Voicethread Slide: Click Here

Reasons For Market Failures

  • Positive and negative externalities: Market will fail if it excludes the externalities involved.
  • Lack of public goods: If the price is very low, there would be short in supply of the product for the market. So the supply of the product would not be efficiently allocated to the customers
  • Under-provision of merit goods
  • Over-provision of demerit goods
  • Abuse of monopoly power: If only one firm has a monopoly on a product, it will prevent other firms from joining in the market. As a result, no other firms will join in, therefore the firm increases the price of the product. As price goes up, customers will not buy the product of the firm, therefore decreasing in supply demanded. This results in high price with low supply allocated to the market.
  • Inequality

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