Market failure occurs when
A) the price system fails to generate an efficient allocation of resources.
B) the price system fails to generate an equal distribution of income.
C) the price system fails to generate an equal distribution of wealth.
D) the price system allows consumers to make their own decisions.

Question

Quizplus · Accepted Answer

Market failure occurs when the price system, through the interaction of supply and demand, fails to allocate resources efficiently. This can happen due to externalities, imperfect competition, incomplete information, and public goods, among other factors. Market failure can lead to overproduction or underproduction of goods, negative externalities such as pollution or congestion, and inefficient allocation of resources that results in consumer surplus and producer surplus not being maximized.

Market Failure Occurs When