Political Economy Economic Systems Questions
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. These failures can lead to market inefficiencies, such as underproduction or overproduction of goods, unequal distribution of resources, and the inability to achieve socially desirable outcomes. In such cases, government intervention through regulations, taxes, subsidies, or provision of public goods may be necessary to correct the market failure and achieve a more efficient allocation of resources.