A situation, usually discussed in a model not in the real world, in which the behavior of optimizing agents in a market would not produce a Pareto optimal
allocation. Sources of market failures:
Terms related to Market Failure:
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Writing a Term Paper? Here are a few starting points for research on Market Failure:
- Monopoly. Monopoly or oligopoly producers have incentives to underproduce and to price above marginal cost, which then gives consumers incentives to buy less than the Pareto optimal allocation.
Journal Articles on Market Failure: