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market failure
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situation in which the allocation of goods and services by a free market is not efficient and can be improved upon from the societal point of view, often leading to a net loss of economic value
~30 min read
Encyclopedic overview
While factories and refineries provide jobs and wages, they are also an example of a market failure, as they impose negative externalities on the surrounding region via their airborne pollutants.
In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. The first known use of the term by economists was in 1958, but the concept has been traced back to the Victorian writers John Stuart Mill and Henry Sidgwick. Market failures are often associated with public goods, time-inconsistent preferences, information asymmetries, failures of competition, principal–agent problems, externalities, unequal bargaining power, behavioral irrationality (in behavioral economics), and macro-economic failures (such as unemployment and inflation).
Excerpted from Wikipedia’s “market failure” article, available under the CC BY-SA 4.0 licence.