Market failure occurs when the allocation of goods and services by a free market is not efficient. This can happen for various reasons, such as the presence of externalities, public goods, or monopolies. In these situations, the market does not produce the optimal quantity of goods, leading to wasted resources or unmet needs. Externalities are costs or benefits that affect third parties not involved in a transaction, while public goods are non-excludable and non-rivalrous, meaning they are available to everyone without diminishing their availability. When these factors are present, government intervention may be necessary to correct the market failure and improve overall welfare.