ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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there are negative externalities in production
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the free market fails to provide sufficient merit goods
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the free market underprices demerit goods
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there is a missing market in the provision of public goods
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Detailed explanation-1: -The causes underlying market failures include negative externalities, incomplete information, concentrated market power, inefficiencies in production and allocation, and inequality.
Detailed explanation-2: -Complete market failure In this situation, there are no goods supplied in the market at all. This results in the ‘missing market. ‘ For example, if consumers would like to buy pink shoes, but there are no businesses that supply them. There is a missing market for this good, therefore this is a complete market failure.
Detailed explanation-3: -Complete market failure-when the market does not supply products at all – there is a missing market. Example: Pure public goods. There is a missing market in the provision of public goods. Partial market failure-when the market functions but it supplies either the wrong quantity of a product or at the wrong price.
Detailed explanation-4: -Summary: Public goods constitute a market failure because: 1) lack of enforceable property rights (nonexcludable), 2) not a divisible homogenous products (nonrival). The private market has no incentive to provide such goods, hence market failure.
Detailed explanation-5: -A complete market failure exists when free markets are unable to allocate scarce resources to the satisfaction of a need or want. This occurs because there are insufficient incentives to encourage profit-seeking firms to enter a market.