The objective of the market economy is to optimize the market outcome. The
achievement of this objective may be difficult or problematic due to some
factors including externalities and market imperfection. This is called market
failure which is also a Government failure in other words. Production and
consumption of goods and services and its impact is not limited to the
entrepreneur or the center of production and consumption itself. My economic
action may have some external effects which will affect the other in the society
positively or negatively. Similarly, my consumption of some goods and services
affect the other or a third party positively or negatively. For example, a smoker
annoys the other with second hand smoke.

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