ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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When the private sector is larger than public sector.
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Because the government will encourage the production of private goods.
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Because the government can increase the level of market power of private businesses.
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When the market mechanism fails to achieve the optimal mix of output.
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Detailed explanation-1: -“Market failure” is a common justification for new government policies. Proponents of interventions love to point to instances of apparently imperfect markets and assume that government taxation, subsidies, and regulation can seamlessly perfect them, thus maximizing social welfare.
Detailed explanation-2: -Governments intervene in markets to address inefficiency. In an optimally efficient market, resources are perfectly allocated to those that need them in the amounts they need. In inefficient markets that is not the case; some may have too much of a resource while others do not have enough.
Detailed explanation-3: -Market failures can be corrected through government intervention, such as new laws or taxes, tariffs, subsidies, and trade restrictions.
Detailed explanation-4: -Government intervention to resolve market failures can also fail to achieve a socially efficient allocation of resources. Government failure is a situation where government intervention in the economy to correct a market failure creates inefficiency and leads to a misallocation of scarce resources.