Market failure
Definition. Market failure occurs when the free market, left to itself, fails to allocate resources efficiently, so that the outcome does not maximise society welfare and too much or too little of a good is produced. Sources include externalities, public goods, market power, and asymmetric information between buyers and sellers.
Asymmetric information is a form of market failure where one party to a transaction knows more than the other, leading to problems such as adverse selection and moral hazard, which can cause markets to function poorly or break down.
This term belongs to Asymmetric Information in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
Want to use market failure for marks in the exam? Learn it in class or message the team.