Question

Write a brief explanation of market failure. Include the relevant terms from the box below and make sure to include examples.

Answer 1

Answer:

Market failure is the economic situation defined by an inefficient distribution of goods and services in the free market. In market failure, the individual incentives for rational behavior do not lead to rational outcomes for the group.

In other words, each individual makes the correct decision for him or herself, but those prove to be the wrong decisions for the group. In traditional microeconomics, this can sometimes be shown as a steady-state disequilibrium in which the quantity supplied does not equal the quantity demanded