ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A monopoly restricting output
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The production of a negative externality
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A firm deciding to produce a private good
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A government subsidising agricultural production
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Detailed explanation-1: -The production of a negative externality involves over-supply.
Detailed explanation-2: -A classic example of a missing market is the case of an externality like pollution, where decision makers are not responsible for some of the consequences of their actions.
Detailed explanation-3: -Air and noise pollution are commonly cited examples of negative externalities.
Detailed explanation-4: -Negative production externalities occur when the production process results in a harmful effect on unrelated third parties. For example, manufacturing plants cause noise and atmospheric pollution during the manufacturing process.
Detailed explanation-5: -The most extreme case of a missing market is the case of pure public goods. Pure public goods clearly provide a benefit to the consumer, but, for several reasons, are unlikely to exist in a market economy. Examples of pure public goods include national defence, the police service, and street lighting.