1. Causes of Market Failure:

Public Goods : Public goods are both non rival and non excludable. This leads to inefficeincy in provision of public goods, because users cannot be excluded from consumption and this creates the free rider problem. For example : The community Toilets are public toilets meant to be used by everyone in general. If there is no provision for charging people for using the community toilets, people will tend to keep it unclean or may overuse the toilets.

Market Power Abuse: This may happen when a single seller or single buyer exerts significant influence over supply and prices of the goods and services. When there is only a single seller in the market, the there is a monopoly, and when there is only a single buyer in the market, there is monospony. The prices charged by the monopolist is higher than the prices charged in freely competitive market, this leads to inefficient allocation of goods and commodities in the market, causing dead weight loss to the society in general.

Externalities: When an economic unit creates benefits for the others for which he/she does not receive any payment, there exists positive externalities. On the other hand if the economic unit inflicts cost on others for which he/she does not make any payment, then there exist negative externalitites. For Example: If an organisation has decided to plant trees in the community, the entire society will tend to benefit from the tree plantation of the organisation, even though the organisation does not get paid for the benefits that they are providing to the society. This is an example of Positive Externality.If a person starts smoking in a bus, he is not only adversly affecting his own health but also the health of others in the bus, even though he is not paying for the damage he is inflicting on others. This is an example of negative externality.

Information Asymmetry : Information asymmetry is the market situation when the buyers and sellers have different information while making a transaction. In this case, one party may have better or more information than the others, which could potentialy affect the terms of trade if the information known by both the parties were same.For Example : A person willing to have himself insured may hide his medical illness history from the insurance company.In such case Information assymetry is causing market failure.

2. Inoculation against diseases like small pox and whooping cough is an example of positive externality. Incoulating people againt such diseases will not only lead to immunisation of those particular people who took the vaccination but also it will reduce the occurance of such diseases in the community because of better immunisation of the people due to innoculation. Since its creating a positive externality in the society, it needs to be provided more than what the market is providing at the present. This is where government intervention comes into place. When the government subsidizes innoculations it is expanding the market for provision of inoculations and thus more vaccinations will be provided for the same. This leads to better immunisation of the society against such diseases and thus leads to effiicient allocation of resources in the society.