Unit 2.8(1): Market Failure – Externalities

IB Economics: Unit 2.8(1): Market Failure – Externalities

Markets fail when the free market forces of demand and supply lead to an allocation of resources that does not maximise the welfare of a country’s citizens. It means that the marginal social costs that result from the production and consumption of a good do not equal the marginal social benefits. Economists often express market failure as a misallocation of resources or where resources have been allocated inefficiently.

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