➡️ Efficiency is the optimal use of resources to produce goods and services. It is achieved when the cost of producing a good or service is minimized while the quality of the output is maximized. Market failure occurs when the market fails to allocate resources efficiently, resulting in an inefficient allocation of resources.
➡️ Market failure can be caused by a variety of factors, including externalities, public goods, imperfect information, and monopoly power. Externalities occur when the production or consumption of a good or service has an effect on a third party that is not taken into account in the market price. Public goods are goods that are non-excludable and non-rivalrous, meaning that they are available to all and cannot be withheld from anyone. Imperfect information occurs when buyers or sellers lack complete information about the good or service being exchanged. Monopoly power occurs when a single firm has control over the market and can set prices higher than the competitive market rate.
➡️ Government intervention can be used to address market failure. Policies such as taxes, subsidies, and regulations can be used to correct market failures and promote efficiency. For example, taxes can be used to reduce the consumption of negative externalities, subsidies can be used to encourage the production of public goods, and regulations can be used to reduce the effects of imperfect information and monopoly power.