Market failure

Market failure is a situation in which the market on its own fails to allocate resources efficiently in a way that balances social costs and benefits; externalities are one example of a market failure.

Definition

According to Principles of Economics by Timothy Taylor (3rd edition),

Market failure. A situation in which the market on its own fails to allocate resources efficiently in a way that balances social costs and benefits; externalities are one example of a market failure.