Market failure occurs when:
A)prices of essential goods such as gas become very high.
B)individual actions have side effects that are not properly taken into account.
C)mutually beneficial trades take place.
D)a business declares bankruptcy.

Question

Quizplus · Accepted Answer

Market failure occurs when individual actions have side effects that are not properly taken into account. This means that the market fails to allocate resources efficiently and the outcome is not socially optimal. Examples of market failure include externalities (e.g. pollution), public goods (e.g. national defense), and imperfect competition (e.g. monopolies). A, C, and D do not represent market failure. High prices of essential goods may indicate a supply and demand imbalance, but it is not a case of market failure. Mutually beneficial trades are the essence of the market system, and businesses declaring bankruptcy is a normal part of market competition.

Market Failure Occurs When