What is Market Failure? Episode 3 | Economics 101

Welcome to Economics 101, a new series designed to distil the fundamental principles of economics into clear, easy-to-understand explanations. Join Dr Stephen Davies as he breaks down complex economic concepts using simple analogies and real-world examples, making economics accessible to everyone regardless of their background. Whether you’re a student, professional, or simply curious about how the economy works, this series will equip you with the essential knowledge to understand the economic forces that shape our daily lives.

In this episode, Dr Davies tackles the widely taught concept of market failure, which dominates contemporary economics teaching and public policy discussions. He explains how neoclassical economics defines market failure as any deviation from perfect market conditions, including externalities, public goods, information asymmetry, monopolies and sticky prices. However, Dr Davies challenges this entire framework, arguing that comparing real-world markets to an impossible ideal of perfect competition is like calling normal travel a ‘failure’ because we cannot move at the speed of light. He demonstrates how the phenomena labelled as market failures are simply features of the real world that markets must navigate, and argues that voluntary exchange and private solutions have historically proven more effective than government intervention at overcoming these challenges.

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