Asked by Angel Martinez on May 16, 2024
Verified
Market power and externalities are two possible causes of market failure.
Externalities
The cost or benefit that affects a party who did not choose to incur that cost or benefit, often not reflected in market prices.
Market Power
The ability of a firm or group of firms to influence the price and production levels of a product or service in the market.
Market Failure
A scenario where the distribution of goods and services by an unregulated market fails to be effective, frequently causing a decrease in overall social welfare.
- Pinpoint the factors and implications associated with market failure.
Verified Answer
JS
Jessica SchiffmanMay 20, 2024
Final Answer :
True
Explanation :
Market power, where a single firm or a small number of firms can control market prices, and externalities, where costs or benefits of a transaction are not fully borne by the buyer or seller but affect third parties, can both lead to market outcomes that are inefficient from a societal perspective, thus causing market failure.
Learning Objectives
- Pinpoint the factors and implications associated with market failure.