When markets fail

Where the model breaks.

Four common cases

Externalities put costs on third parties. Public goods cannot exclude non-payers. Monopolies restrict output. Information asymmetry lets one side exploit the other.

Pollution is the classic externality: cheap for the producer, costly for everyone.
Insurance and used cars are the textbook information problems.

Government is not automatic

Identifying a market failure does not prove intervention will improve it. Policy has its own information and incentive problems, which is a large part of the modern debate.