HL.b.3—Market failure

Diagnose market failure.

A market fails environmentally when prices do not include important social or ecological costs, so private decisions create excessive harm.

A factory releases pollution without paying for health damage; its product price is too low relative to total cost.

Identify the missing cost, the affected party and the mechanism that could internalise it.

Key idea: Diagnose market failure.

Market failure is not simply a market with an unpopular result.