The Market failure reference article from the English Wikipedia on 24-Jul-2004 (provided by Fixed Reference: snapshots of Wikipedia from wikipedia.org)

Market failure

In economics, a market failure is a case in which a market fails to efficiently provide or allocate goods and services. More generally, market failure refers to situations where market forces do not serve the perceived "public interest." Economists use model-like theorems to explain such cases. The two main reasons that markets fail are sub-optimal market structures and the inability to internalize costs or benefits into prices and thus into microeconomic decision-making in markets.

Examples of the inability to internalize economic costs or benefits into prices include:

• externality
• public goods and common property resources
• undefined property rights
• asymmetrical information
  • adverse selection
  • moral hazard
  • principal-agent problem

Strategies to reduce these imperfections require alternative, non-market, institutions, such as the centralized government or state, tradition, and/or community democracy. These are often studied in the field of collective action.

Examples of sub-optimal market structures include:

• imperfect competition
  • monopoly
  • monopsony
  • oligopoly
  • oligopsony
  • monopolistic competition
• downward sloping longrun average cost curve, i.e. natural monopoly
• price discrimination
  • price skimming

Some economists, particularly those of the Austrian School and other libertarians, dispute whether market failures exist or that the presumed theorems are usuable to justify market interventions. On the other end of the liberal political spectrum, "modern," New Deal, or statist liberals (i.e., new liberals) see market failures as ubiquitous. Even if this is true, libertarians argue that the government or state may do worse job than markets do, because of bureaucracy and the influence of special interests. This is called "government failure." Off the liberal spectrum, the Marxian school typically argues that the elements of the economic "ruling class" that benefit from market failures are often the most influential ones in politics, so that market failure and government failure end up working together.

Modern macroeconomics, especially that of the Keynesian or new Keynesian varieties, is based on the existence of market failures which prevent the automatic attainment of full employment of resources and the working of Say's Law.

See also:

• microeconomics
• externality
• social cost

Topics in microeconomics	Edit
Scarcity | Opportunity cost | Supply and demand | Elasticity | Economic surplus | Aggregation of individual demand to total, or market, demand | Consumer theory | Production, costs, and pricing | Market form | Welfare economics | Market failure

This is the "Market failure" reference article from the English Wikipedia. All text is available under the terms of the GNU Free Documentation License. See also our Disclaimer.