A market failure occurs when there is an inefficient allocation of resources. In other words, the true cost of a good is not reflected in the price. This might be because of a third-party benefit that does not pay for that benefit. Or, it could arise due to a cost that is imposed on a third party without their consent and compensation. In turn, this leads to an inefficient allocation of resources as a third party may bear the cost or benefit. There are many causes of market failure which range from externalities to inefficient supply. The inefficient allocation of resources is not just limited to the supply of goods. Market failure can also occur through externalities. This can be both positive and negative.

Propose and analyze any four causes of market failure.