The document discusses the differences between social costs/benefits and private costs/benefits, with the external costs/benefits being the difference between the two. It defines market failure as occurring when free markets fail to make optimal use of scarce resources. It provides examples of government interventions like taxation, subsidies, nationalization, and regulations that can be used to control for market failures by internalizing external costs and incentivizing external benefits.

2. • The Social cost of any action are all of the
related costs associated with that action.
• Private costs are those costs involved in
an action which accrue to the decision
maker.
• The difference between the two is the
external cost.

3. • The social benefits of a decision are all of
the benefits that accrue from that
decision.
• Private benefits are those that accrue
solely to the decision maker.
• The difference between them is the
external cost

4. MARKET FAILURE
• It exists whenever a free market
left to its own devices and totally
free from any form of
government intervention fails to
make the optimum use of scare
resources.

5. Government intervention to control
market failure
• Taxation- For making firms consider the
external cost, the government may
impose tax.
• Subsidy- Private sector may not be
interested in providing external benefit,
so the government may provide incentive
through subsidy.

6. • Nationalization- The government may take
over few sectors essential creating large scale
external benefits.
• Regulations- The government may pass
necessary laws required from time to time to
restrict establishment of some kind of factory
and hazardous process in specific area/city
limits