Create two new demand and supply diagrams to demonstrate the following:   In your first diagram, show the negative externality of consuming too much fast food. Carefully label your diagram and identify the deadweight loss.   In your second diagram, add a tax to this market. Highlight what happens to consumption.   In a dot point below your second diagram, briefly tell us whether the second diagram has a deadweight loss

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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.