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What is Market Failure?

Level:
A-Level, IB Diploma
Board:
AQA, Edexcel, Eduqas, IB, OCR, WJEC

Last updated 21 May 2017

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Market failure occurs when freely functioning markets fail to allocate scarce resources in a way that optimises social welfare. This short introductory topic video explores some of the main examples of market failure including from the housing and labour markets.

Complete Market Failure - when the market does not supply products at all – there is a missing market

Partial Market Failure - when the market functions but it supplies either the wrong quantity of a product or at the wrong price.

Most market failures covered in A level Economics are partial - involving a deadweight loss of social welfare

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