Economics Market Failures Questions
A market failure refers to a situation where the allocation of goods and services in a market is inefficient, resulting in an outcome that is not socially optimal. It occurs when the free market mechanism fails to allocate resources efficiently, leading to a misallocation of resources and a suboptimal level of production and consumption. Market failures can arise due to various reasons, such as externalities, public goods, imperfect competition, information asymmetry, and income inequality.