Market failure
Market failure is when a free market, left alone, doesn't produce the efficient outcome. Causes include externalities, public goods, monopoly power and information asymmetry.
It's the main economic argument for government action such as taxes on pollution, public funding of research or regulation of monopolies.
Related terms
- Externality: An externality is a cost or benefit that falls on people outside a transaction.
- Public good: A public good is non-excludable (you can't stop people using it) and non-rival (one person's use doesn't reduce another's), like national defence or a lighthouse.
- Information asymmetry: Information asymmetry is when one side of a deal knows more than the other.
- Monopoly: A monopoly is a market with a single seller and no close substitutes, which lets it set a higher price and sell less than a competitive market would, creating deadweight loss.
Practise with $10,000 in play money
Free. No real money involved.
For learning only. This isn't financial advice.