What is the 5 causes of market failures?

Answer 1

Market failures can arise from several causes, including:

1. Externalities: Costs or benefits of a transaction that affect third parties not involved in the exchange, such as pollution from a factory.
2. Public Goods: Goods that are non-excludable and non-rivalrous, meaning one person's use doesn't reduce availability for others, leading to underproduction, like national defense.
3. Information Asymmetry: Situations where one party has more or better information than the other, leading to poor decision-making, such as in used car sales.
4. Market Power: When a single seller or buyer can significantly influence prices, resulting in monopolies or oligopolies that restrict competition.
5. Inequality: Disparities in wealth and income can lead to inadequate demand for goods and services, causing inefficiencies in the market.