Market failure occurs when free markets fail to efficiently allocate scarce resources. Market failure can come in many forms, the main four being public goods, merit goods, externalities and imperfect competition. In this report I will examine the relationship between these four main factors and the free market. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Public goods are goods and services that cannot be provided by the private sector. Public goods can be classified into pure public goods and quasi-public goods. Pure public goods are not provided by the private sector at all – so there is market failure due to “lack of markets”. This is partly due to the “free rider” principle, meaning people can access, consume and benefit from public goods without having to pay for them. Pure public goods have two distinctive characteristics, these are; ? Non-rivalrous: One person's consumption of the good does not reduce the quantity available for consumption by another person. For example. Terrestrial television services provided by the BBC. ? Non-excludable – where it is not possible to provide a good or service to one person without it being available for the enjoyment of others – if it is not possible to exclude non-payers, a profit-motivated company may decide not to provide these products, e.g. defense systems, headlight protection. Quasi-public goods are goods that are not purely public, which means that they have a public nature but do not fully present the characteristics of non-excludability and non-rivalry. An example of this would be roads, which could become rivals during rush hour. Merit goods are goods and services that are deemed socially desirable and are expected to be underproduced and underconsumed. Examples of merit goods would be education, health care, social services, and public parks. Unlike pure public goods, merit-based goods could be, and indeed are, provided through the market but not needed in quantities sufficient to maximize social welfare. Merit goods have a tendency to be under-supplied by the market because; ? Do they generate positive externalities? Is there an unequal distribution of income? Could consumers not have perfect information? Consumers may be uncertain about their future needs. An externality is an impact on a person unrelated to the initial transaction. An externality occurs when a person undertakes an activity that affects the well-being of a third party and yet neither pays nor receives compensation for that effect. When the effect on the viewer is unfavorable, the externality is called a negative externality. When the effect on the viewer is beneficial, the externality is called a positive externality. Positive externalities include; ? Instruction? Perfume? Parks Negative externalities include; ? Pollution ? Antisocial Behavior Imperfect competition is a competitive market situation in which there are many sellers, but they sell heterogeneous (dissimilar) goods compared to the perfectly competitive market scenario. As the name suggests, competitive markets that have an impact in nature. Impact competition is the completion of the real world. Today some industries and sellers follow it to gain excess profits. In this market scenario, the seller has the luxury of influencing the price to obtain greater profits. If a seller sells a non-identical good on the market, he can increase prices and make profits. The high profits attract other sellers to enter the market and the sellers, who are suffering 6.