what happens when markets don't function property. In some circumstances, economically desirable goods are not produced at all. in other situations, they are either overproduced or underproduced.
demand-side market failures
happen when demand curves do not reflect consumers' full willingness to pay for good or service
supply-side market failures
occur when supply curves do not reflect the full cost of producing a good or services
as the difference between the maximum price a consumer is (or consumers are) willing to pay for a product an the actual price that they do pay
is the difference between the actual price a producer received (or producers received) and the minimum acceptable price that a consumer would have to pay the producer to make a particular unit of output available
efficiency losses (or deadweight Losses)
reductions of combined consumer and producer surplus-result from both underproduction and overproduction.
optimal reduction of an externality
is achievd b/c competition forces orange growers to use the best technologies and combinations of resources available. Doing so minimizes the per-unit cost of the output produced.
is achieved b/c the correct quantity of oranges- is produced relative to other goods and service