ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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prices charged to cover social cost
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a monopoly making abnormal profit
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the closure of small, independent shops in a rural area
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the inability of a car producer to achieve economies of scale
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Detailed explanation-1: -The Bottom Line Monopolies contribute to market failure because they limit efficiency, innovation, and healthy competition. In an efficient market, prices are controlled by all players in the market because supply and demand swing more toward equilibrium.
Detailed explanation-2: -A simple example of market failure is when a monopolist seller sets high rates to the products leaving no choice for the buyers other than to purchase the overpriced goods.
Detailed explanation-3: -In the case of monopolies, abuse of power can lead to market failure. Market failure occurs when the price mechanism fails to take into account all of the costs and/or benefits of providing and consuming a good. As a result, the market fails to supply the socially optimal amount of the good.
Detailed explanation-4: -The main types of market failure include asymmetric information, concentrated market power, public goods and externalities.