What is a primary cause of market failure that may necessitate government intervention?

A primary cause of market failure is the existence of externalities, which are effects of a market activity that impact people who are not directly involved in that activity. For example, when a factory pollutes the air, it affects the health of nearby residents who did not choose to buy products from that factory. This pollution creates costs for these residents, but the factory does not have to pay for the harm it causes, leading to more pollution than is socially desirable. Because the market does not account for these external costs, government intervention is often needed to regulate pollution and protect public health. By imposing rules or taxes on polluting activities, the government can help ensure that the factory considers the well-being of the community, leading to a healthier environment for everyone.