ABSTRACT
This chapter discusses each type of market failure, along with some of the government policies that can be used to correct market failures. It examines the issue of whether or not the US government has been successful in correcting most market failures and the extent to which government failure has been an issue with these government efforts. The chapter describes the debate over the balance of government-market activity we should have in a capitalist market economy. Markets can only work efficiently if all actors have complete information about the products they are buying and selling. The United States has created a government agency, the Food and Drug Administration, to oversee product labeling and safety. The United States and other developed countries legalized unions in order to give workers greater bargaining power in the job market. Markets clearly generate significant market failures, and the government is often successful in reducing the negative impact of market failures.
