What is market failure? How can the government correct market failure?
What will be an ideal response?
Market failure is a situation in which the market economy leads to too few or too many resources going to a specific economic activity as a result of externalities. External costs lead to too much supply in a market than otherwise. In this case, the government can correct the market outcome by imposing a tax and regulation. On the contrary, external benefits lead to too little market demand than otherwise. In this case, the government can correct the market outcome with subsidies and regulation.
You might also like to view...
Without warranties, used car buyers can assume that all used cars are "lemons" because of
A) moral hazard. B) moral dilemma. C) adverse selection. D) adverse reaction.
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand of reserves and causes the federal funds interest rate to
________, everything else held constant. A) decreases; fall B) increases; fall C) increases; rise D) decreases; rise
Introducing a tariff on vitamin E would: a. reduce imports of vitamin E
b. increase U.S. consumption of domestically produced vitamin E. c. decrease total U.S. consumption of vitamin E. d. all of the above.
Game theory is useful to analyze oligopoly markets because a. each firm is a price taker
b. the market is comprised of a single firm. c. the firms in the market engage in strategic behavior. d. each firm produces a differentiated product.