Complete Market Failure | A-Level Economics Model Paragraph

Complete market failure

Complete market failure occurs when the free market fails to provide a good entirely, resulting in a missing market. This happens in the case of public goods, which are goods that are both non-rival and non-excludable. These characteristics cause the free-rider problem to occur. A good is non-excludable if it is impossible to prevent someone from accessing it regardless of whether they have paid, and non-rival if one person's consumption does not reduce the amount available for others. The non-excludable nature of public goods means that there is no incentive for consumers to pay, as they can free-ride on the contribution of others. For example, once a pavement has been built or a street lamp has been installed, there is no incentive for users to continue to contribute. Producers would be aware that there is no incentive to provide the good or service in the first place, as they would not be able to profit. This means that there would be a missing market for street lamps if they were left to the free market.

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