Market Failure

Where the free market fails to deliver efficient economic outcomes, this is termed Market Failure. Market failures come in four kinds:

• Externalities,
• Asymmetric Information,
• Market Power and
• Public goods

The essence of market failure is the channels of influence between two persons which are not governed by negotiations and choice:

• Market power: One party in the negotiation has little power and experiences a loss of choice.
• Asymmetric Information: The process of negotiation works poorly as there is a lack of information.
• Externalities: There are channels of influence between two parties that are not negotiated.
• Public goods: The individual is not given the opportunity to negotiate and choose.