Define what market failure is and identify an example of market failure, explaining fully why it is a relevant example.

Market failure is defined as a misallocation of resources, and essentially entails that market forces are not operating effectively through the price mechanism to distribute goods and services from suppliers to demanders. This could be because externalities exist that are not fully incorporated into a good's price. An example of this would be the dumping of chemicals by a plant into a nearby river. This is bad for society, and potentially the cost of clean up or dissuasion from consuming that good should be added to the good. Market failure occurs when this cost is not fully accounted for, because too much of the good is likely to be supplied compared to the socially optimal level.

EE
Answered by Edward E. Economics tutor

1701 Views

See similar Economics GCSE tutors

Related Economics GCSE answers

All answers ▸

What is the law of demand?


Explain two benefits to the government that falling unemployment provides.


What are supply side policies and how do they effect the economy?


What is the Philips Curve?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning