Asked by Terry Valentine on May 05, 2024
Verified
Market failure means that
A) the law of supply and demand has stopped functioning.
B) our resources are not allocated efficiently.
C) the stock market has crashed.
D) prices are no longer reliable indicators of how much things cost.
Market Failure
A situation where the allocation of goods and services is not efficient, often leading to a net social welfare loss.
- Acquire knowledge of the key principles behind market failures, particularly externalities and inefficiencies.
Verified Answer
DM
diandra manningMay 12, 2024
Final Answer :
B
Explanation :
Market failure occurs when the allocation of resources by the free market is inefficient, resulting in either a surplus of goods or services, or a lack of goods and services being produced. This can happen due to externalities (when the actions of one party affect the well-being of others), monopolies, asymmetry of information, and other factors. The law of supply and demand still functions, but it may not lead to an optimal outcome. The stock market crashing and prices not being reliable indicators of cost are not necessarily indicators of market failure.
Learning Objectives
- Acquire knowledge of the key principles behind market failures, particularly externalities and inefficiencies.
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