Market failure occurs when the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss. This typically happens when the market does not allocate resources in a way that balances marginal social benefits and marginal social costs effectively.

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A Market Failure

Question 15

Multiple Choice

A market failure

A) refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.
B) refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost.
C) refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.
D) refers to a breakdown in a market economy because of widespread corruption in government.

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