A market failure occurs when one or more of the conditions necessary for competitive markets does not exist.
1. Inadequate competition – not enough sellers or buyers
2. Inadequate information – not enough information available about market conditions
3. Resource immobility – land, capital, labor, and entrepreneurship do not move to markets where returns are the highest
4. Public goods – products that are collectively consumed by everyone. Because it is difficult to have all individuals pay their “fair share” of a public good, private markets produce too few of them. public goods video
5. Externalities – economic side effect that affects an uninvolved third party. Considered a market failure because their costs and benefits are not reflected in the market price. Negative externalities – harmful side effects, such as pollution or noise - can be corrected by charging a tax Positive externality - beneficial side effects, such as public education - can be corrected with subsidies externalities video