Cases when a market economy fails to provide people with a desirable supply of certain kinds of goods and services. Market failures can occur in a market economy when it does not produce enough public goods and goods with positive externalities, when it produces too many goods with negative externalities, when goods are overpriced by natural monopolies, and when market agents do not have access to sufficient information, such as information about the quality of some consumer goods. These market failures usually justify economic intervention by the government. But there is always the risk of government failure- in which faulty political processes or institutional structures prevent government measures from improving social welfare (see Chapter 11).
Most economists agree that a market economy in which all parties engage in voluntary transactions usually benefits society as a whole. In some cases, however, the market may lead to an inefficient distribution of resources; this is what we call a market failure. Market failures are often used as a reason to allow for government intervention in the economy.