Market failures take place when
A) a market fails to have the goods that consumers want.
B) an underground market develops.
C) market transactions lead to underproduction or overproduction of a good.
D) producers stop production.

Question

Quizplus · Accepted Answer

Market failures occur when the market fails to efficiently allocate goods and services, which can result in either underproduction or overproduction of a good. This occurs because the market does not take into account certain costs or benefits, or private individuals do not have the ability to capture all of the benefits or costs of their actions. A and D are incorrect because they do not reflect an inefficient allocation of goods and services, and B is incorrect because an underground market is not necessarily a market failure.

Market Failures Take Place When