8. Markets are not perfect. Market failures occur when the marketplace fails to provide socially desirable outcomes.

8. Markets are not perfect. Market failures occur when the marketplace fails to provide socially desirable outcomes. If markets operate without any influence by the government, they provide too much of some things (such as pollution, market power, and poverty) and not enough of others (such as education, highways, and national defense). The appropriate role of government is discussed in Chapter 10 (Fiscal Policy).