When a market left to itself does not allocate resources efficiently. Interventionist politicians usually allege market failure to justify their interventions. Economists have identified four main sorts or causes of market failure. * The abuse of market power, which can occur whenever a single buyer or seller can exert significant influence over prices or output (see monopoly and monopsony). * externalities – when the market does not take into account the impact of an economic activity on outsiders. For example, the market may ignore the costs imposed on outsiders by a firm polluting the environment. * public goods, such as national defense. How much defense would be provided if it were left to the market?

• Where there is incomplete or asymmetric information or uncertainty. Abuse of market power is best tackled through antitrust policy. Externalities can be reduced through regulation, a tax or subsidy, or by using property rights to force the market to take into account the welfare of all who are affected by an economic activity. The supply of public goods can be ensured by compelling everybody to pay for them through the tax system.