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Economics vocabulary · Markets, Supply and Demand

Market failure

Meaning in economics, with examples

nounCommon term

In economics, market failure means: A situation in which a free market, left alone, does not produce an efficient outcome for society, so too much or too little of something is produced.

In Turkish: piyasa başarısızlığı, piyasa aksaklığı

How it is used

The main causes taught in courses are externalities, public goods, monopoly power and missing or unequal information. Economists use the idea to justify taxes, regulation or public provision, while noting that government action can fail too (government failure).

Example sentences

  1. Pollution is a textbook case of market failure, because factories do not pay for the damage they cause.

  2. The report argues that the lack of affordable childcare is a market failure that justifies public support.

Common collocations

  • a case of market failure
  • correct market failure
  • sources of market failure
  • government failure
  • externalityA cost or benefit of an activity that falls on people who are not part of the deal and is not reflected in the market price.
  • public goodA good that people cannot easily be stopped from using and whose use by one person does not reduce what is left for others, such as street lighting.
  • monopolyA market in which a single firm is the only seller of a product with no close substitutes, which gives it the power to set prices.
  • competitionRivalry between firms that sell similar products and try to win the same customers, which tends to push prices down and quality up.
  • subsidyMoney or other support that a government gives to producers or consumers to lower the price of a product or to encourage an activity.

More terms: Markets, Supply and Demand

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This page explains English vocabulary for learners. It is not financial advice.