Which of the following is an example of market failure?
A)a firm becomes insolvent and is forced out of the market
B)a firm's research and development fails to develop a new product
C)a firm closes down a factory due to poor sales
D)a firm's pollution into a river reduces the number of fish that can be caught

Question

Quizplus · Accepted Answer

The pollution from the firm is a negative externality, which is a type of market failure where the actions of a firm have an adverse impact on third parties who are not involved in the transaction. In this case, the reduced number of fish reduces the economic welfare of the local community who rely on fishing, and this cost is not reflected in the firm's decision-making process.

Which of the Following Is an Example of Market Failure