When markets fail:
A)government intervention may help.
B)the market realizes the maximum possible gains from trade given the available resources.
C)there may still be an efficient allocation of resources.
D)no goods and services are produced.

Question

Quizplus · Accepted Answer

When markets fail, such as in cases of market power, externalities, or public goods, government intervention may help to correct the inefficiencies and restore a more efficient allocation of resources. This could be in the form of regulations, taxes, subsidies, or public provision of certain goods or services. Option B is incorrect, as the market may not necessarily realize the maximum possible gains from trade in cases of market failures. Option C is also incorrect, as market failures result in inefficient allocation of resources. Option D is incorrect, as goods and services can still be produced even when markets fail, though not necessarily at the socially optimal level.

When Markets Fail