Market Failure + Externalities

1. MSC exceeds MPC

1. MSB exceeds MPB

1. merit goods underproduced
2. demerit goods over-produced

1. leads to under-production and high prices

1. causes unemployment
2. lower productive efficiency

Nota:

• i.e. people not directly involved in production or consumption

1. MSB > MPB
2. good underproduced

1. MSC > MPC
   1. leads to overproduction
2. smoking
3. litter
4. food waste
5. pollution
   1. impact on health