Market Failure

Statement

Market failure occurs when the free market, operating without government intervention, fails to allocate scarce resources efficiently, so that society’s welfare is not maximised.

Notes

Market failure is the standing justification for government intervention in individual markets. Its predominant symptom is allocative inefficiency — too much or too little of a good is produced relative to the social optimum — which manifests as a deadweight welfare loss. The 9570 syllabus recognises several causes: externalities, the non-provision of public goods, information failure, factor immobility, market dominance, and — as a distinct, equity-based failing — inequity.