What is market failure? When is market failure likely to arise?

Market failure is an economic term that encompasses situations where, in any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This can lead to inefficiency in the allocation of goods and services.

Market failure can occur due to various possible factors:\n\n1. Externalities: These are the indirect costs or benefits, not accounted for in the final price of goods or services. For example, a factory producing goods might pollute the environment, which isn't a cost borne by consumers or the factory, but a cost to society. This is a negative externality.\n\n2. Market Power: In an ideal market, no single party has the ability to set prices, they are determined by supply and demand. But when a party has monopoly power, they can set prices to their advantage, leading to market failure.\n\n3. Public Goods: These are non-excludable and non-rival goods, meaning they are available for everyone, and one's usage doesn't reduce availability for others. Examples include clean air, street lights etc. As these can't be priced easily, they lead to market failure.\n\n4. Incomplete Information: If buyers and sellers don't have all the information to make rational decisions, this can lead to market failure.

Market failure is likely to arise when the above-mentioned conditions occur. It commonly occurs in a situation known as the 'Tragedy of the Commons'. When a resource is available to all, and each individual has an incentive to deplete it, the resource can eventually become scarce, leading to market failure. It also occurs in the case of public goods, when markets often fail to provide them at all, or in sufficient quantity.