Question 3, part a: “Market failure” is an economic term for the situation in which a good (or service) in a market is overproduced and that consumer demand does not equate to good production or on the other hand, suppliers were unable to meet consumer demand, leading to loss of market balance and allocation resource efficiency. Market failures have major effects on the economy due to misallocation of resources and without any government intervention to achieve the goals. the location of these resources could lead to wasted recourse. There are different types of market failures such as: -Externalities: external costs and external benefits which are not taken into account in market activities by consumers and suppliers and which affect a third party, there are certain negative externalities creating external costs and will be overproduced if left to market mechanisms, such as the tobacco and alcohol industry, while there are positive externalities such as healthcare and education which, if left to market mechanisms, will be underproduced, which leads to market failure.-Missing markets: for example traffic lights or street lamps which are called public goods, they have means of non-rivalry when someone one consumes the good will not reduce the quantity available to others and non-exclusivity which means when the good is provided. anyone can use it and cannot be stopped from using it, which creates the free rider problem when everyone wants to use the product but will wait for someone to pay for it so they can use it for free at The end, no one buys this product and will be missed in the market, so the government has to step in and pay for it. - Unequal knowledge: like dentists and ...... middle of paper ...... ics is a situation where both parties in the economic activity lack knowledge or one party has more information than the 'other and in both cases it leads to a misallocation of resources because one party pays more or less and the other produces less or more, which leads to market failure. There are many examples. imperfect information, such as in the used car market, where the seller has better information about the condition of the car than the buyer and this situation usually ends with the buyer paying more than the real value of the car due to difficulties in assessing the condition of the car with limited cost. information. Another example is car insurance where insurance companies do not know the driving risks of each driver and therefore we can see that imperfect information is a major type of market failure and should be taken into account by the economists when analyzing any market..