What are two causes of market failure?
A) externalities and market power
B) market power and incorrect forecasts of consumer demand
C) externalities and foreign competition
D) government intervention and foreign competition

Question

Quizplus · Accepted Answer

Market failure can occur due to externalities, which are costs or benefits that are not reflected in the market price of a good or service. For example, pollution is a negative externality that can harm individuals and communities, but the polluter does not bear the full cost of their actions. Market power, which refers to the ability of a firm or group of firms to influence market prices and output, can also lead to market failure. This can result in higher prices for consumers and reduced competition, which can lead to lower product quality and innovation. Incorrect forecasts of consumer demand, foreign competition, and government intervention can also cause market failure, but these factors are not as directly related to externalities and market power.

What Are Two Causes of Market Failure