Wednesday, January 16th 2019

Market Failure


Market Failure Meaning:
Where a market fails to function in the most ‘efficient’ way possible: that is, where there exists another way for it to function that would result in more overall utility for the participants.

Market Failure Example:
Without lighthouses, ships run the risk of running aground. A lighthouse is far more valuable to a ship than the cost involved in having to pay a little money towards building one. If ship owners did not come together to build and operate lighthouses, resulting in no lighthouses and considerable danger to ships, then this would be an example of market failure.
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