Market Failure
Market failure occurs when the free market fails to allocate resources efficiently, resulting in deadweight loss. Major causes include externalities, public goods, information asymmetry, and monopoly power. Market failure provides rationale for government intervention.
Real World
London's air pollution exceeds WHO safe limits partly because drivers do not pay the full health cost their emissions impose on residents — the Congestion Charge and ULEZ are government attempts to correct this externality-driven market failure.
Exam Focus
For 'evaluate' questions, always assess whether government intervention itself may cause failure — government failure is the expected counterpoint.
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