Market failure is a situation in which
A)negative economic profits persist in the long run.
B)negative economic profits exist in the short run.
C)the market does not provide the ideal or optimal amount of a particular good.
D)the market provides the ideal or optimal amount of a particular good.

Question

Quizplus · Accepted Answer

Market failure occurs when the free market fails to allocate resources efficiently, resulting in either an underproduction or overproduction of a good or service or the production of goods with an undesirable outcome, such as negative externalities. This means that the market does not provide the ideal or optimal amount of a particular good. Both A and B describe situations where negative profits exist, but market failure is about inefficient resource allocation. Choice D is incorrect because if the market provided the ideal or optimal amount of a particular good, then there would be no market failure.

Market Failure Is a Situation in Which