Market Failure is a term used to describe a situation in which the free market fails to allocate resources efficiently. This can occur due to a variety of factors, including imperfect information, externalities, public goods, and market power. Market failure can lead to inefficient outcomes, such as overproduction or
In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. The first known use of the term by economists was in 1958, but the concept has been traced back to the Victorian writers John Stuart Mill and Henry Sidgwick. Market failures are often associated with public goods, time-inconsistent preferences, information asymmetries, failures of competition, principal–agent problems, externalities, unequal bargaining power, behavioral irrationality, and macro-economic failures.