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 FailureDiagrams and Definitions

2. What is market failure?

3. Sources of Market FailureExternalitiesMerit and Demerit GoodsPublic GoodsAbuse of Monopoly Power

4. Positive Externalities Negative ExternalitiesThird parties benefit from the production of goods and servicesThird parties bear spillover costs of the production of goods and servicesThird parties benefit from the consumption of goods and servicesThird 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 & RegulationCorrecting Negative Externalities of ProductionTradable PermitsTax

11. Legislation & RegulationCorrecting Negative Externalities of ConsumptionAdvertisingTax firm

12. Positive Production Externality

13. Positive Consumption Externality

14. LegislationCorrecting Positive Externalities of ConsumptionAdvertisingSubsidies

15. SubsidyCorrecting Positive Externalities of Production

16. Market-based AppealInternalize ExternalityOffending Firms and third parties monitor progressExtension of Property Rights to Correct Negative Externalities

17. Public, Merit & Demerit Goods

18. Public GoodsMerit GoodsDemerit GoodsNon-Excludable

19. Non-rivalrous

20. Free riders

21. Merit goods are under-consumed and underprovided