Describe the concept of a market failure.

Describe the concept of a market failure.

Market failure refers to a situation where the allocation of goods and services in a market is inefficient, resulting in a misallocation of resources. It occurs when the free market fails to achieve an optimal outcome due to various factors such as externalities, imperfect information, market power, and public goods. In a market failure, the equilibrium price and quantity do not reflect the true costs and benefits of production and consumption, leading to a loss of economic welfare. The government intervention is often required to correct market failures through policies such as regulations, taxes, subsidies, and public provision of goods and services.