Market failure occurs when the price mechanism allocates resources inefficiently. Market failure means there is allocative and Pareto inefficiency. Allocative efficiency occurs when resources are used to produce what consumers want and in the quantities demanded. Pareto efficiency occurs when the only way to make one person better off is to make another worse off. Market failure means resources are not used to produce the goods and services consumers want and it is possible to make at least one person better off without making anyone else worse off. Market failure could occur due to: Monopoly, Public Goods, Externalities or Asymmetric Information.
