Which of the following could be evidence of a market failure?
A)Resources in an economy are not fully utilized.
B)The market price of a product is above the average cost of production.
C)There are only a handful of firms competing against each other in an industry.
D)Market prices do not reflect true production costs.

Question

Quizplus · Accepted Answer

If market prices do not reflect true production costs, this could indicate that the market is not functioning efficiently and that producers are not taking into account all the costs associated with production. This is a classic example of a market failure known as "externalities".

Which of the Following Could Be Evidence of a Market