When uninhibited prices, production, and sales create outcomes that a society doesn't want. market mechanism. market failure. government directive. government failure.

Market failure can occur when the free market fails to allocate resources efficiently, leading to negative outcomes like pollution, monopolies, or unequal access to critical services. These inefficiencies can create significant social costs that society finds undesirable, prompting debates about whether to rely on market solutions or engage government intervention. Real-world applications of market failure can be seen in environmental issues, such as climate change. Here, the market often ignores the long-term costs of pollution, resulting in overproduction of harmful goods. Recognition of such failures has led to policy solutions like carbon taxes or cap-and-trade systems, aimed at internalizing environmental costs and steering behavior towards more sustainable practices.