Market failure

Factories and refineries provide jobs, but they also pollute the environment. In economics, this is an example of market failure.

In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient. Common causes of market failure are information assymmetries, externalities, natural monopolies and public goods. Market failure is one of the reason why a state regulates a market to improve the allocation.

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