Market failure can be caused by
A)low consumer demand.
B)government intervention and price controls.
C)externalities and market power.
D)high prices and foreign competition.

Question

Quizplus · Accepted Answer

Market failure occurs when the free market fails to allocate resources efficiently, leading to an inefficient allocation of goods and services. Externalities, such as pollution or congestion, result in social costs or benefits that are not reflected in market prices, leading to an inefficient allocation of resources. Market power, where a firm or group of firms dominate a market, can also lead to inefficient outcomes, such as higher prices or reduced output. Low consumer demand, high prices, and foreign competition may lead to market inefficiencies, but they are not the primary causes of market failure. Government intervention and price controls can also distort market outcomes, but they may be necessary to correct market failures caused by externalities or market power.

Market Failure Can Be Caused by