Question

when the forces of supply and demand lead to an inefficient outcome the economic surplus is maximized. economists call this a market failure. it is a signal that the government needs to take ownership of that market including all the resources involved. economists call this a deadweight loss. b. classify each scenario as to whether it is likely to result in an efficient or inefficient market outcome.

Answer 1

a. When the forces of supply and demand lead to an inefficient outcome: economists call this a market failure.

What is meant by market failure?

This is the term that has to do with the state where the market that is an economy can be said to not be working.

b. The question in this category needs us to be able to fill in the details from the question into the empty boxes. Therefore:

For the efficient box

• a market in which economic surplus is maximized

For the inefficient box:

• a market transaction in which buyers or sellers behave irrationally
• a market transaction in which one party has information not available to other party
• a market dominated by few powerful businesses
• a market in which government regulation creates distortions

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