This document discusses different types of market failures including externalities, merit and demerit goods, and monopoly power. It defines positive and negative externalities as costs or benefits affecting third parties in production or consumption. Externalities can be addressed through taxes, subsidies, legislation, tradable permits or extending property rights. Public goods are non-excludable and non-rivalrous but underprovided due to free riders. Merit goods are underconsumed while demerit goods are overconsumed and these issues can be addressed through subsidies, advertising or regulation. Monopoly power leads to inefficiencies that can be corrected through legislation, regulation or government ownership.

1. Market Failure Diagrams and Definitions

2. What is market failure?

3. Sources of Market Failure Externalities Merit and Demerit Goods Public Goods Abuse of Monopoly Power

4. Positive Externalities Negative Externalities Third parties benefit from the production of goods and services Third parties bear spillover costs of the production of goods and services Third parties benefit from the consumption of goods and services Third parties bear spillover cost of the consumption of goods and services

5. Negative Production Externality

6. Negative Consumption Externality

7. Tax and Negative Production Externality

8. Tax on Producers and Negative Consumption Externality

9. Advertising to Shift Demand and Reduce Negative Consumption Externality

10. Legislation & Regulation Correcting Negative Externalities of Production Tradable Permits Tax

11. Legislation & Regulation Correcting Negative Externalities of Consumption Advertising Tax firm

12. Positive Production Externality

13. Positive Consumption Externality

14. Legislation Correcting Positive Externalities of Consumption Advertising Subsidies

15. Subsidy Correcting Positive Externalities of Production

16. Market-based Appeal Internalize Externality Offending Firms and third parties monitor progress Extension of Property Rights to Correct Negative Externalities

17. Public, Merit & Demerit Goods

19. Non-rivalrous

20. Free riders

21. Merit goods are under-consumed and underprovided

23. Lack of income

24. Lack of knowledge

25. subsidies

26. government provision

27. advertising

28. regulationMerit Goods

30. Lack of knowledge and/or apathy

31. tax

32. advertising

33. regulationDemerit Goods

35. higher prices

36. legislation and regulation

37. government ownershipMonopoly Power