ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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public goods are provided free of charge to users.
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positive externalities lead to overproduction of a good.
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there is underproduction of goods with positive externalities.
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individuals’ incomes and wealth are not identical.
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Detailed explanation-1: -The failure of private decisions in the marketplace to achieve an efficient allocation of scarce resources is called market failure. Markets will not generate an efficient allocation of resources if they are not competitive or if property rights are not well defined and fully transferable.
Detailed explanation-2: -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.
Detailed explanation-3: -The underproduction of goods with positive externalities occurs because the producers of the goods do not capture the extra value the goods create for others in the price they receive for their goods.
Detailed explanation-4: -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.