ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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buyers and sellers pay for the true opportunity costs of their actions
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there are no externalities
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the government provides merit goods free
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third parties in society are affected and not compensated
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Detailed explanation-1: -A market failure is when there is an inefficient distribution of goods and services that leads to a lack of equilibrium in a free market. The law of supply and demand is meant to lead to an equilibrium in prices, and when it does not it indicates a factor in the market has failed.
Detailed explanation-2: -When markets fail, the individual incentives for rational behavior do not lead to rational outcomes for the group. In other words, each individual makes the correct decision for themselves, but those prove to be the wrong decisions for the group as a whole.
Detailed explanation-3: -A market failure that occurs when a third party to a transaction experiences uncompensated costs is called a(n) externality, or spillover cost.
Detailed explanation-4: -Market failure is the economic situation defined by an inefficient distribution of goods and services in the free market. Furthermore, the individual incentives for rational behavior do not lead to rational outcomes for the group.