The market works efficiently in the absence of externalities if the good is   a rival and excludable. b nonrival and nonexcludable. c nonrival and excludable. d rival and nonexcludable. e rival and either excludable or nonexcludable

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Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.