ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Undersupply of Innovation
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Presence of Asymmetric information
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Both of them
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None of them
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Detailed explanation-1: -Possible reasons for market incompleteness In practice the idea of a state contingent security for every possible realization of nature seems unrealistic. For example, if the economy lacks the institutions to guarantee that the contracts are enforced, it is unlikely that agents will either sell or buy these securities.
Detailed explanation-2: -The two leading causes of market failure are externality and market power.
Detailed explanation-3: -There are five major elements that, if lacking or weak, can cause a market failure. The five major elements include: competition, information, mobility of resources, externalities, and distribution of public goods.
Detailed explanation-4: -The main types of market failure include asymmetric information, concentrated market power, public goods and externalities.