Markaðsrof

Markaðsrof, often translated as market failure, occurs when the allocation of goods and services by a free market is not efficient. This means that the market, left to its own devices, does not produce the optimal outcome for society. Several factors can lead to market failure, including externalities, public goods, information asymmetry, and market power.

Externalities are costs or benefits that affect a third party not directly involved in a transaction. For example, pollution from a factory is a negative externality, imposing costs on society that are not borne by the factory owner. Conversely, vaccination can create positive externalities by reducing disease transmission for others.

Public goods are non-excludable and non-rivalrous, meaning they cannot be withheld from anyone and one person's consumption does not diminish another's. National defense and street lighting are classic examples. Free markets tend to underprovide public goods because individuals have an incentive to "free-ride," benefiting without contributing to their cost.

Information asymmetry arises when one party in a transaction has more or better information than the other. This can lead to adverse selection or moral hazard, where the less-informed party makes suboptimal decisions. For instance, in the used car market, sellers typically know more about a car's condition than buyers.

Market power, such as monopolies or oligopolies, allows firms to influence prices and output, leading to less efficient outcomes compared to perfect competition. These firms may restrict supply to raise prices, resulting in a deadweight loss for society. Governments often intervene to address market failures through regulation, subsidies, taxes, or direct provision of goods and services.