Market failure occurs when free markets fail to allocate scarce resources efficiently. Market failures can take many forms, the four main ones being public goods, merit goods, externalities, and imperfect competition. In this report, I will explore the relationship between these four main factors and the free market. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an original essay Public goods are goods and services that cannot be provided by the private sector. Public goods can be classified into pure public goods and quasi-public goods. Pure public goods are not provided by the private sector at all – hence a market failure due to “missing markets”. This is partly due to the “free rider” principle, that is, citizens can access, consume and benefit from public goods without having to pay for them. Pure public goods have two remarkable characteristics: ? Non-rival – consumption of the good by one person does not reduce the quantity available for consumption by another person. For example. Terrestrial television services provided by the BBC. ? Non-exclusive – when it is not possible to provide a good or service to one person without others being able to benefit from it – if you cannot exclude non-payers, a profit-motivated business may decide to do not supply these products, for example defense systems, headlight protection. Quasi-public goods are goods that are not purely public, meaning that they are public in nature but do not fully exhibit the characteristics of non-exclusion and non-rivalry. Roads are an example: they can become rivals during rush hours. Merit goods are goods and services that are considered socially desirable and are expected to be underproduced and underconsumed. Examples of merit goods would be education, health care, social services, and public parks. Unlike pure public goods, merit goods could be, and are, provided through the market, but not necessarily in sufficient quantities to maximize social welfare. Valuable goods tend to be undersupplied by the market for the following reasons: ? Do they generate positive externalities? Is there an unequal distribution of income? Perhaps consumers lack perfect information? Consumers may be uncertain about their future needs. An externality is an impact on someone unrelated to the initial transaction. An externality occurs when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for this effect. When the effect on the spectator is unfavorable, the externality is called negative externality. When the effect on the spectator is beneficial, the externality is called positive externality. Positive externalities include: ? Education ? Perfume? Parks Negative externalities include: ? Pollution ? Antisocial behavior Imperfect competition is a competitive market situation in which there are many sellers, but they sell heterogeneous (different) products, as opposed to the perfectly competitive market scenario. As the name suggests, competitive markets that impact nature. Impact competition is the completion of the real world. Today, some industries and sellers follow it to earn excess profits. In this market scenario, the seller has the luxury of influencing the price in order to achieve 6.