ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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prices rise in response to excess demand.
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no account is taken of positive externalities in consumption.
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firms are unprofitable and go out of business.
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costs increase as firms expand their production.
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Detailed explanation-1: -Externalities lead to market failure because a product or service’s price equilibrium does not accurately reflect the true costs and benefits of that product or service.
Detailed explanation-2: -What are Positive Consumption Externalities? A positive consumption externality occurs when consuming a good cause a positive spillover to a third party lying outside the transaction.
Detailed explanation-3: -Market failure can be caused by a lack of information, market control, public goods, and externalities. Market failures can be corrected through government intervention, such as new laws or taxes, tariffs, subsidies, and trade restrictions.
Detailed explanation-4: -A positive externality is a benefit of producing or consuming a product. For example, education is a positive externality of school because people learn and develop skills for careers and their lives.