A market failure occurs when:
A)some people are able to buy many more goods than other people are.
B)the individual's pursuit of self-interest means some people will not be able to buy all of the goods they need.
C)the individual's pursuit of self-interest makes the society worse off.
D)while pursuing their self-interest, some people may make a mistake-for example, they may regret buying a particular car.

Question

Quizplus · Accepted Answer

A market failure occurs when the free market, left on its own, fails to provide a socially optimal outcome. This means that the pursuit of self-interest by individuals does not result in the best outcome for society as a whole. One common example of a market failure is externalities, where the actions of one person or firm affect others in a negative or positive way, and the market does not account for these effects. Other examples include public goods, monopolies, and asymmetric information. In all these cases, the market fails to allocate resources efficiently, and government intervention may be necessary to correct the problem. Answers A and B refer to income inequality and scarcity, which are not necessarily market failures. Answer D is a common individual mistake, but it is not related to market failures.

A Market Failure Occurs When