How do the concepts of market failure and failure of market outcome relate to the concept of Pareto optimality?
A) Market failure is judged by the criteria of Pareto optimality; failure of market outcome rejects Pareto optimality as the sole criterion.
B) Failure of market outcome is judged by the criteria of Pareto optimality; market failure rejects Pareto optimality as the sole criterion.
C) Both market failure and failure of market outcome are judged by the criteria of Pareto optimality.
D) Both market failure and failure of market outcome reject the criteria of Pareto optimality for another criterion.

Question

Quizplus · Accepted Answer

Market failure occurs when the market fails to allocate resources efficiently, leading to a situation where it is possible to make one person better off without making anyone else worse off (i.e., a Pareto improvement). Failure of market outcome occurs when the market outcome is not Pareto optimal, meaning that it is possible to make at least one person better off without making anyone else worse off. Therefore, market failure is judged by the criteria of Pareto optimality, while failure of market outcome rejects Pareto optimality as the sole criterion.

How Do the Concepts of Market Failure and Failure of Market