Market failures can lead to government intervention from "summary" of Comparative Economic Systems by Richard L. Carson
Market failures occur when the free market system does not allocate resources efficiently, resulting in a misallocation of goods and services. This can lead to a range of problems, including externalities, public goods, imperfect competition, and information asymmetry. In the presence of market failures, there is a rationale for government intervention to correct these inefficiencies and improve social welfare. Externalities are costs or benefits that are not reflected in the price of a good or service, leading to an overproduction or underproduction of the good. For example, pollution is a negative externality that can harm society as a whole. In such cases, the government can intervene by imposing taxes or regulations to internalize the external costs and encourage firms to reduce pollution. Public goods are goods that are non-excludable and non-rivalrous, meaning that individuals cannot be excluded from consuming them and one person's consumption does not diminish the ...
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