The presence of market failures implies that
A) money is not an effective tool for exchange in a market system.
B) there is an active role for government, even in a market system.
C) individuals and ﬁrms should strive to be self-suﬃcient rather than specialize.
D) command systems are superior to market systems in the allocation of resources.

Question

Quizplus · Accepted Answer

Market failures occur when the free market fails to allocate resources efficiently, leading to a loss of welfare or social surplus. This can happen due to externalities, public goods, imperfect competition, information asymmetries, and other factors. As a result, there is a need for government intervention to correct or mitigate these market failures and ensure a more optimal allocation of resources. Therefore, option B is the correct choice as it acknowledges the need for government involvement in a market system. The other options are incorrect as they either propose ineffective solutions or suggest alternative economic systems.

The Presence of Market Failures Implies That