A market failure occurs when there is a nonoptimal allocation that leads to an inefficient market.
When people act in their own best interests rationally, the result is often subpar or economically inefficient. This is known as market failure. Explicit markets, also known as usual markets, are those in which commodities and services are bought and sold outright.
Lack of information, market regulation, public goods, and externalities can all contribute to market failure. Government intervention, such as new laws, taxes, tariffs, subsidies, and trade restrictions, can be used to fix market failures.
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