MJC 09S101 Economics

To start things off, allow me to give a brief intorduction of Market Failure.

In the real world, markets fail to achieve social efficiency. Part of the problem is the existance of externalities, part is a lack of perfect competition and part is the fact that markets may take a long time to adjust to any disequilibrium given the often considerable short-run immobility of factors.

Markets generally fail to achieve social efficiency. There are various types of market failure. Market failures provide one of the major justifications for government intervention in the economy.

Externalities are spillover cost or benefits.

External Benefits are benefits from production (or consumption) experienced by people other than the producer (or consumer).

External Costs are cost of production (or consumption) borne by people other than the producer (or consumer).

Source: John Sloman, Economics, 6th Edition (p.300)

Hope that this would help to give a kick start!