In dealing with market failures, the government always bases its decisions on economic analysis of marginal cost and marginal benefit.

Marginal Cost

Marginal cost refers to the added expense incurred from producing one more unit of a product or service.

Marginal Benefit

The increase in satisfaction or utility experienced from the consumption or production of one additional unit of a good or service.

Market Failures

Situations where market outcomes are not efficient, often justifying government intervention.