Public policies can address market failures from "summary" of Principles of Macroeconomics by N. Gregory Mankiw
When markets don't work efficiently, we call it a market failure. Market failures can arise due to various reasons, such as externalities, public goods, monopoly power, and asymmetric information. In such cases, public policies can step in to improve the market outcome. For example, when there is a negative externality like pollution, the government can impose taxes or regulations to internalize the externality and make producers pay the social cost of their actions. Another example is when a good is a public good, meaning it is non-excludable and non-rival in consumption. In such cases, private markets may not provide the optimal quantity of the good, so the government can intervene to ens...
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