Market Failure

This refers to the principle that the free market may not allocate resources efficiently, in a way that achieves the highest total social benefit.

Causes of market failure include Public Goods, where no one consumer can purchase the item eg. a road; Merit Goods, where the item’s benefits are undervalued by consumers; Monopolies, where suppliers may distort sales prices; Externalities, such as the effect of pollution on nearby communities; and Inequality, for example between the ability of rich and poor to buy essential goods or services such as energy or healthcare.In cases of market failure governments typically intervene through regulation, taxation, the direct provision of the goods/services or through competition policies.

Market Failure is a term normally found in business economics and financial management.

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