Market failures and imperfections

Market failure occurs when the market fails to allocate resources efficiently, resulting in a loss of economic and social welfare.
Public goods, such as street lighting or national defence, cause market failure as they are non-excludable and non-rivalrous, meaning not paying doesn’t prevent usage and usage by one doesn’t prevent usage by others.
Externalities are costs or benefits affecting parties not directly involved in a transaction or economic decision. They can be positive (benefits) or negative (costs).
Negative externalities like pollution cause overproduction and overconsumption, resulting in market failure, as the social cost is greater than the private cost.
Positive externalities like education lead to underproduction and underconsumption, causing market failure as social benefits exceed private benefits.
Merit goods, goods with positive externalities, are underconsumed due to imperfect information or myopia (short-sightedness).
Demerit goods, goods with negative externalities, are overconsumed due to imperfect information or ignorance.

Imperfect competition refers to markets where one or more conditions of perfect competition are not met, including monopoly, oligopoly and monopolistic competition.
A monopoly is a market dominated by a single seller, leading to potential abuse of market power and inefficiencies.
An oligopoly is a market dominated by few sellers, where actions of one firm significantly influence others, leading to non-price competition and potential collusion.
Monopolistic competition is a market with many sellers offering differentiated products, leading to advertising costs and lack of productive efficiency.
Information asymmetry occurs when one party in a transaction has more or better information than the other, as in the case of medical insurance or second-hand cars.
Factor immobility includes both geographical immobility (a worker’s ability to move for a job) and occupational immobility (a worker’s ability to change job types), both of which can lead to unemployment and resource misallocation.
Income inequality refers to the unequal distribution of income within an economy. Absolute poverty, relative poverty and wealth inequality can result from income inequality and can lead to social and economic problems.