ECONOMICS (CBSE/UGC NET)

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ECONOMICS

MARKET FAILURES

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Market failure results in a misallocation of resources. In some cases, this can be corrected by the government
A
restricting the manufacture of goods that generate positive externalities
B
Providing public goods
C
subsidising all loss-making firms
D
placing a tax on merit goods
Explanation: 

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: -Market failures can be corrected through government intervention, such as new laws or taxes, tariffs, subsidies, and trade restrictions.

Detailed explanation-3: -In a market economy, an individual’s ability to consume goods and services depends upon their income and wealth and an inequitable distribution of income and wealth is likely to lead to a misallocation of resources and hence market failure.

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: -Government intervention is a situation when the intervention of the government in the market lead to market failure.

There is 1 question to complete.
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