Definition
Market Failure
When unregulated market outcomes are inefficient or harmful to social welfare.
Definition
When unregulated market outcomes are inefficient or harmful to social welfare.
Why It Matters
Market failures — externalities, information asymmetries, public goods, monopoly — are the foundational justification for government intervention in economics. Understanding which type of failure is present guides the appropriate policy response.
Policy Example
Data privacy represents multiple simultaneous market failures: information asymmetry (users don't know how their data is used), consent failure (all-or-nothing terms), and negative externalities (data about you reveals information about others). Each failure justifies a different type of regulatory response.
In Context