The Efficiency of a Competitive Market
*? When an competitive markets generate an inefficient allocation of the resources or market failure?
1) Externalities
- Costs or benefits which do not show up as part of the market price (for example pollution)
2) Lack of Information
- Imperfect information prevents the consumers from making utility maximizing decisions.
*? Government intervention in these markets increase efficiency.
*? Government intervention without market failure creates inefficiency or the deadweight loss.