How public goods, positive and negative externalities, merit and demerit goods, monopoly and other market imperfections, and inequalities in the distribution of income and wealth can lead to market failure
Several distinct problems can cause markets to misallocate resources. These include ignored side-effects on third parties, goods that markets won't provide, and firms with too much power over prices.
Real World
Amazon's dominance in UK online retail illustrates monopoly power as market failure — its ability to set prices above competitive levels transfers surplus from consumers to shareholders, reducing allocative efficiency across the entire retail sector.
Exam Focus
Structure 'assess' or 'evaluate' answers by treating each cause of market failure as a separate paragraph, linking each one explicitly back to misallocation.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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