- Economics 13

11/11/25 Market Failure (Missed) - Negative Externalities (Missed)

Define a free market

Market without government intervention, which should lead to an efficient allocation of resources, and maximum social welfare (gov. incentive).

Define market failure

Where the market fails to produce what consumers require at the lowest possible cost. The inefficiency of this leads to a misallocation of resources.

Define missing market falure

Free markets COMPLETELY fail to produce a product at all.

List examples of missing market failures

• Street lamps

• Flood defence

• Asteroid protection

Define partial market failure

When goods are provided but in the wrong quantities, so markets fail to allocate resources efficiently.

List examples of partial market failure

• Fast fashion

• Smoking

• Education

What is the acronym for the 7 main causes of market failure

MINIPEP

List the 7 main causes of market failure

• Monopoly

• Information failure

• Negative externalities

• Immobility of FOPs

• Public goods

• Equity problems

• Positive externalities

Define externality

Costs or benefits that spill over and affect third parties, external to the economic transaction.

List how externalities cause market failure

• The market price does not take account of the true costs (incorrect supply).

• Over/underproduction occurs.

Define private costs

Cost that affects the individual or firm of an economic transaction.

Are private costs reflected in price

YES

Define external costs

Costs to the society of the transaction

Are external costs reflected in price

NO

Give the formula for Social Costs

Private costs + External costs = Social Costs

What does m stand for and mean, in regards to costs

m means marginal (change in cost)

Give the formula for Marginal Social Costs

MPC + MEC = MSC