Final answer:
Market failure refers to inefficient resource allocation when social costs and benefits are not balanced, often due to negative externalities requiring public sector intervention.
Explanation:
Market failure occurs when the market does not allocate resources efficiently, leading to outcomes where social costs and benefits are not balanced. This can result from negative externalities, such as when a third party not involved in a transaction suffers from its effects. In such cases, public sector intervention may be necessary to improve resource allocation efficiency.
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