Market Failure

EconomicsIntermediate Level

10 flashcards

Card 1 of 1010%

Question

What is market failure and why does it happen?

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Answer

Definition

Market failure occurs when the allocation of goods and services is not efficient, often due to externalities, public goods, or monopolies.

Example

Pollution from a factory that harms the environment is an externality, leading to market failure because the factory does not bear the full costs of its production.

Quick Tip

Market failure means the market isn't doing its job!

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