◆ THE ECONOMY
Market Failures & Policy
Where markets break and what to do about it — externalities, information, and government intervention.
66 articles
◆ THE COVER STORYThe Four Types of Goods: Why Excludability and Rivalry Determine How Markets WorkTwo yes-or-no questions sort every good into one of four boxes. The box decides whether a market, a government, or neither can supply it well.Read the breakdown →Deep Dives
◆ INFORMATION ECONOMICS
The Market for Lemons: How Information Gaps Kill Good Markets
Akerlof's 1970 Nobel-winning insight: when buyers can't tell good from bad, average pricing drives quality out until only the lemons remain.
◆ INFORMATION ECONOMICS
Signaling and Screening: How Markets Close the Information Gap
When one side of a deal knows more than the other, markets have two tools: signaling (the informed party acts) and screening (the uninformed party designs).
◆ GOVERNMENT INTERVENTION
Subsidies Work — Just Not Always the Way Intended
Subsidies reliably increase whatever they pay for. The trouble is the side effects: capitalized benefits, distorted production, and misdirected money.
◆ LABOR ECONOMICS
Minimum Wage and Unions: What the Economics of Labor Market Intervention Actually Says
The minimum wage and unions both intervene in the labor market. The economics is more contested than either side admits — what the evidence and CBO show.
◆ SUPPLY & DEMAND
How Elasticity Drives Pricing Decisions, Tax Policy, and Who Actually Pays
Elasticity determines whether a price increase raises or destroys revenue, which side of a market bears a tax, and how large the economic cost of that tax…
◆ GOVERNMENT INTERVENTION
How Taxes Actually Work on the Economy — From Your Paycheck to the Policy Debate
Taxes don't just move money — they change behavior, split burdens in ways Congress didn't intend, and create efficiency costs that grow faster than the rates.
◆ MARKET FAILURES
The Tragedy of the Commons: When Rational Choices Wreck a Shared Resource
Nobody set out to kill the cod. Every captain was doing the rational thing. That is exactly what makes the tragedy of the commons worth understanding.
◆ GOVERNMENT INTERVENTION
What Happens When You Cap Prices Below Equilibrium: Rent Control and Shortages
A price cap below the market-clearing price doesn't make a good cheaper for everyone — it creates a shortage. Rent control is the textbook case.
◆ INFORMATION ECONOMICS
The Principal-Agent Problem: When the Person You Hired Has Different Goals
The principal-agent problem arises when you hire someone to act for you but cannot fully observe what they do — and their interests don't match yours.
Quick Answers
Positive Externality: When Transactions Benefit People Who Didn't Pay
A positive externality is an uncompensated benefit conferred on third parties by a market transaction.
Read more →Public Goods: What Markets Can't Provide on Their Own
A public good is non-excludable and non-rival. Free-riding prevents private markets from supplying it efficiently, making government provision or subsidy…
Read more →Deadweight Loss: The Economic Value That Disappears in Inefficient Markets
Deadweight loss is the reduction in total economic surplus from market inefficiency — units where the benefit to buyers exceeds the cost to sellers that go…
Read more →Carbon Tax: Pricing Greenhouse Gas Emissions Directly
A carbon tax is a per-unit charge on greenhouse gas emissions, designed to make the private cost of fossil fuel use reflect its social cost.
Read more →Price Floor: What Happens When Government Sets a Minimum Price
A price floor is a legal minimum price above the market equilibrium. It protects sellers from very low prices but creates surpluses — excess supply that…
Read more →Common Resources: Rival But Non-Excludable
A common resource is rival (one person's use reduces availability for others) but non-excludable (no one can be effectively prevented from using it).
Read more →Surplus: When Supply Exceeds Demand and What Happens Next
A surplus occurs when the quantity supplied at a given price exceeds the quantity demanded.
Read more →Market Failure: When Markets Produce the Wrong Outcome
Market failure occurs when a free market fails to allocate resources efficiently on its own.
Read more →Pigouvian Tax: Making Polluters Pay the True Cost
A Pigouvian tax is a per-unit tax on a good or activity set equal to the external cost it imposes.
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