What is a market failure?
A)A trader who fails to make money on the market
B)A product that has zero demand
C)A situation in which the market does not allocate resources efficiently
D)A market in which goods cannot be bought or sold

Question

Quizplus · Accepted Answer

A market failure occurs when the market does not allocate resources efficiently. This can happen where there are externalities, asymmetric information, monopolies, moral hazard, or public goods. One example is pollution, which is a negative externality. If one company saves money by polluting but the pollution drives another company out of business, the pollution has not been properly priced, because overall the market has lost value. Pollution can be re-priced through government regulation.

What Is a Market Failure