Question:
Market failures occur when
(1) some firms cannot find a market for their products.
(2) markets do not allocate resources efficiently.
(3) markets do not supply merit goods.
(4) demand exceeds supply leading to higher prices.
(5) government sets price controls on goods and services.
Correct Answer:
(2)
Answer Explanation:
Market failure is strictly defined as a situation where the free market mechanism fails to achieve an efficient allocation of resources (allocative efficiency), often due to externalities, public goods, or monopolies.
Topic: Market Failure Year: 2023
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