Market Failure

• public goods

• Merit and demerit goods

• Externalities

• Information asymmetries and gaps

• Absence of private property rights

• Income inequality

• Volatile prices

1) public goods

Non-excludable: no one is prevented from consuming the good

Non-rival: the benefit people get from the good doesn’t diminish if more people consume the good

E.g. army/street light

• under provided due to free rider problem (people who benefits from the good without paying for it)

• private sector don’t make profit

• Difficult to measure the value consumers get from public goods, hard to put a price

2) merit goods

E.g. education & healthcare

Demerit goods

E.g. cigarettes & alcohol