Market Failure

Occurs
due
to
inefficiency
in
the
Occurs due to inefficiency in the
allocation
allocationof
ofgoods
goodsand
andservices.
services.
Resources
Resourcesmay
maybe
be
Over-allocated
Over-allocated
Under-allocated
Under-allocated
Sources :Competation,inequality
Sources :Competation,inequality
,externality
,externality,public
,publicgoods
goods

MainCauses
Causes
Main
Externality
A cost or benefit
A cost or benefit
accruing to a third
accruing to a third
party .
party .
Positive externalities
Positive externalities
Too little is produced
Too little is produced
Demand-side market
Demand-side market
failures
failures
E.g.: Park, Education
E.g.: Park, Education
Negative externalities
Negative externalities
Too much is produced
Too much is produced
Supply side market failures
Supply side market failures
E.g.: Smoking
E.g.: Smoking

Public good

Provided by
Provided
by
government
government
Offered for free
Offered
for free
Characteristics
Characteristics
Non-rivalry
Non-rivalry
Non-excludability
Non-excludability
Free-rider problem
Free-rider
problem
Example: National
Example:
National
Defense
Defense

Productivity and Its

Importance
Productivity is an economic measure of output
per unit of input.
Important contributor and indicator of the total
economic prosperity.
Fundamental determinant of the growth of a
countrys
Standard of living .
Labor growth
Wage levels
Technological improvement.