Market failure

In economics, a market failure is a situation in which markets do not efficiently organize production or allocate goods and services to consumers (for example, a failure to allocate goods in a way some see as socially or morally preferable). To economists, the term would normally be applied to situations where the inefficiency is particularly dramatic, or when it is suggested that non-market institutions would provide a more desirable result. On the other hand, to many, market failures are situations where market forces do not serve the perceived "public interest". Here, the focus is on the economists' theories of market failure.

Related Topics:
Economics - Market - Institution - Public interest

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Economists use model-like theorems to explain or understand such cases. The two main reasons that markets fail are:

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• the inadequate expression of costs or benefits in prices and thus into microeconomic decision-making in markets.
• sub-optimal market structures
 
Market failure: External costs and benefits ►