Market Failures

Market Failures

Market failures is an economic concept that refers to situations in which the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss. In a market failure, the individual incentives for rational behavior do not lead to rational outcomes for the group. Common causes of market failures include externalities (where the full costs or benefits of a decision are not reflected in market prices), public goods (goods that are non-excludable and non-rivalrous, leading to free-rider problems), information asymmetries (where one party has more or better information than the other), and market power (where a single entity has the power to influence market prices). Market failures can occur in various sectors of the economy, such as healthcare, education, and the environment. In cases of market failure, government intervention through regulations, taxes, subsidies, or public provision may be necessary to correct the inefficient market outcome and improve social welfare

Externalities, Public Goods, Information Asymmetries, Market Power

— Robert Anderson

CITATION : "Robert Anderson. 'Market Failures.' Design+Encyclopedia. https://design-encyclopedia.com/define/market-failures?E=432197 (Accessed on October 14, 2026)"