A market failure occurs when
A)price equals marginal cost.
B)there is a non-optimal allocation that leads to an inefficient market.
C)deadweight loss is maximized.
D)a firm shuts down.

Question

Quizplus · Accepted Answer

A non-optimal allocation that leads to an inefficient market, such as monopolies or externalities, results in a market failure, even if the price equals marginal cost. Deadweight loss and firms shutting down can be consequences of a market failure, but they are not the definition of it.

A Market Failure Occurs When