After studying the seventh session topic entitled Market Failure and also read the additional material, please explain about the causes that makes market failure happened! Please provide at least one example of market failure to support your opinion.

1. Externalities: Externalities are costs or benefits that are not reflected in the market price of a good or service. When these external costs or benefits exist, the market fails to consider their impact, resulting in an inefficient allocation of resources. For example, pollution from a factory can impose costs on the surrounding community in the form of health issues and environmental damage. If the factory doesn't bear the cost of pollution, it can continue to produce without considering the negative externalities, leading to market failure.


2. Market Power: Market power refers to the ability of a single buyer or seller, or a group of them, to influence the market price or quantity of a product. When a firm has significant market power, it can manipulate prices or restrict output to maximize its own profits, leading to an inefficient allocation of resources. One example is a monopoly, where a single firm dominates the market and can charge higher prices or offer lower-quality products due to the lack of competition.


3. Public Goods: Public goods are non-excludable and non-rivalrous in consumption, meaning that once they are provided, everyone can benefit from them, and one person's use does not diminish its availability to others. Due to the nature of public goods, private markets have a tendency to underprovide them because individuals have no incentive to pay for them voluntarily. For instance, national defense is a public good that benefits all citizens, but it would be impractical to exclude non-payers. Hence, the government typically intervenes to provide public goods and correct the market failure.