An Example Of Market Failure

A market is a place where producer and consumers meet to trade goods and services and any missing or incomplete information due to ignorance or uncertainty leads to a market failure, since the party with better information has a competitive advantage. Market failures arise when the value of goods and services produced equals the value of goods and services not produced with the allocated efficiency criteria using voluntary information exchange process.
Incomplete, misunderstood or imperfect information results in consumers or producers making different decisions if they had complete knowledge and information. Essentially, the incomplete information creates fault in the exchange process between consumer and producer which prevents markets from efficiently allocating scarce resources. The reasons free markets could fail to provide the socially efficient quantities of goods are market power, externalities, public

The markets have not necessarily resulted in the socially efficient quantities of goods at socially efficient prices. A company that has a market power will always produce lower than the socially efficient level of output. This is because the company can charge a price exceeding its marginal cost of production for a large profit.
In such a situation, the value to society of producing another unit of the goods and services are greater than the cost of the resources needed to produce that unit and it would be a net gain to society if additional output were produced, but that will happen only with government regulating the actions of the company in an attempt to increase a minimal level of well-being and social support for all citizens. A free market has not necessarily produced efficient quantities of goods and service at efficient prices for the society which is the main reasons for government involvement to correct the market