Which factor is commonly associated with market failure?

Market failure occurs when the allocation of goods and services in a free market is not efficient, leading to a net loss in economic welfare. One of the primary factors associated with market failure is the existence of public goods. Public goods are characterized by two main features: they are non-excludable, meaning that individuals cannot be effectively excluded from using them, and they are non-rivalrous, meaning that one person's use of the good does not reduce availability for others.

Because public goods can be consumed by anyone without diminishing their availability, private markets struggle to provide them adequately. This often leads to underproduction or no production at all. Classic examples of public goods include national defense, public parks, and street lighting. The lack of a profit incentive for private companies to produce these goods results in market failure, as society still has a need for such services that are not being met.

In contrast, excessive competition typically leads to more consumer choices and can drive innovation. Government intervention can sometimes correct market failures, particularly in cases where regulation is necessary to ensure public goods are provided. Innovation, while crucial for economic growth, does not inherently lead to market failure.