b)Write short notes on the causes of market failure, and suggest ways of overcoming it.

Market failure occurs when the free market fails to allocate resources efficiently. This can be caused by a variety of factors, such as externalities, public goods, information asymmetry, and monopoly power.

Externalities occur when the production or consumption of a good or service has an effect on a third party that is not reflected in the price of the good or service. This can lead to over- or under-consumption of the good or service. To address this, governments can use taxes or subsidies to correct the market price and encourage efficient consumption.

Public goods are goods that are non-rival and non-excludable, meaning that one person’s consumption of the good does not reduce the amount available for others, and it is difficult to exclude people from consuming the good. This can lead to under-provision of the good in the market, as individuals have no incentive to pay for the good. To address this, governments can provide public goods directly or use taxes or subsidies to encourage private provision.

Information asymmetry occurs when one party in a transaction has more information than the other. This can lead to market inefficiencies, as the party with more information can take advantage of the other. To address this, governments can use regulations to ensure that both parties have access to the same information.

Monopoly power occurs when one firm has control over the market for a good or service. This can lead to higher prices and reduced output, as the firm has no incentive to lower prices or increase output. To address this, governments can use antitrust laws to break up monopolies and encourage competition.