Question:
Market failure occurs when
(1) firms continue to incur heavy losses.
(2) firms cannot find markets for their products.
(3) demand falls and firms are compelled to cut their production.
(4) prices rise and consumers find it difficult to meet their needs.
(5) the price mechanism does not allocate resources efficiently.
Correct Answer:
(5)
Answer Explanation:
Market failure is the strict economic term for a situation where the free market, left to its own devices, fails to achieve allocative efficiency, resulting in a misallocation of society’s scarce resources.
Topic: Market Failure Year: 2022
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