Revision Presentation - Market Failure & the Environment

This new revision presentation examines the concept of market failure in the context of the environment.

Launch interactive version of Environmental Market Failure and Policy Options

Download printable handouts (pdf)

Market failure occurs when the price mechanism fails to deliver an efficient or equitable allocation of resources

Allocative efficiency occurs when the price charged for a product equals the marginal social cost of production

If the market does not price an externality correctly there is a loss of allocative efficiency

This leads to a loss of economic and social welfare and can have severe distributional consequences

Poorer people are often those worse affected by the consequences of climate change

The presentation looks at some of the issues relating to environmental damage including examples of the tragedy of the commons. And then considers some of the main forms of government intervention that might help to correct key environmental market failures.