Market failure refers to a situation where a free market, left on its own, fails to allocate resources efficiently, leading to an undesirable outcome. It occurs when the market doesn't produce enough goods or services or fails to distribute them fairly.
Market failure can happen due to factors like imperfect competition, external costs or benefits, and lack of information. In simple terms, it means that the market doesn't do a good job by itself in meeting the needs of society, so external interventions may be necessary.
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