Market Failures The first motivation for government involvement in the
economy is the existence of market failures, problems that cause a market
economy to deliver an outcome that does not maximize efficiency. Throughout
this book, and in particular in Chapters 5–17, we discuss a host of market
failures that impede the operation of the market forces you learned about inbasic microeconomics. Here we briefly explore a failure in the health insurance
market that may cause its equilibrium outcome to be inefficient.