Which of the following statements is true about market failures? I.A seller produces too much of the good at too high a price.II.Information is available to all decision makers.III.External costs are not considered in production decisions by producers.
A)Statement I is true. IV.
B)Statements I and II are true.
C)Statement III is true.
D)Statements I, II, and III are true.

Question

Quizplus · Accepted Answer

Market failures occur when the market mechanism fails to allocate resources efficiently. Statement III is true because external costs, such as pollution or congestion, are often not included in the production decisions of producers. Statement I is not necessarily true as sellers may produce too little at too high a price, resulting in a shortage. Statement II is not always true as information may not be available or may be asymmetrically distributed among decision makers.

Which of the Following Statements Is True About Market Failures