Market failure occurs whenever a market leads to a misallocation of resources
Market failure happens when a market produces the wrong amount of a good or service. Society ends up with too much of something, too little, or none at all.
Real World
The global market for antibiotics is considered a case of market failure: pharmaceutical companies under-produce new antibiotics because low prices make R&D unprofitable, yet society urgently needs them to combat drug-resistant bacteria.
Exam Focus
Define misallocation precisely — 'resources not allocated to their highest social value use' — before explaining the specific type of market failure.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
How well did you know this?