Market failure

Just a quickie introduction to market failure.

Market failure occurs when the price mechanism causes and inefficient allocation of resources; the forces of demand and supply lead to a net welfare loss to society. Consequently, resources are not allocated to their best of optimum use.

There are various types of market failure and you may come across different classifications in your textbooks. However, the Edexcel Unit 1 specification focuses on the following: externalities, public goods, imperfect market information, labour immobility and unstable commodity markets.

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