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.