Market failures happen when the free market doesn’t distribute goods and services efficiently. This can cause big economic problems. It can hurt people's well-being and lead to unfair distribution of resources. Here are some common reasons for market failures:

1. Externalities: These occur when a transaction affects people who aren’t directly involved.

   • For example, if a factory pollutes the air, it can harm the health of people living nearby.

   • Fact: The World Bank says that air pollution costs the world more than $5 trillion every year.

2. Public Goods: These are things that everyone can use without limiting others, like national defense and public parks.

   • Because everyone can enjoy them, private companies have little reason to provide them, which leads to not enough being produced.

3. Imperfect Information: When buyers or sellers don’t have all the information they need, they can make poor choices.

   • This is often seen with health products or financial services, which can create problems in the market.

4. Monopolies: This is when one company controls the entire market.

   • They can charge higher prices than in a competitive market, which leaves consumers with less money to spend.

The effects of market failures can be serious. They can lead to less production, higher prices, and decreased overall well-being in the economy. For example, studies show that fixing market failures through rules and taxes could boost social welfare by as much as $1.2 trillion in the U.S. alone.