Question

Market failure occurs whenever? A. free markets fail to distribute resources efficiently. B. goods fail to arrive at a market in a timely fashion. C. government builds infrastructure. D. voluntary exchange in a market fails to result in a sale.

Answer 1

Market failure occurs whenever "free markets fail to distribute resources efficiently".

Answer: Option A

Explanation:

The free market is a supply and demand-based economic system, with minor or zero government control. Market failure take place on the failure of efficient resource distribution, because if the demand of public will not be met on time than self life of product start decreasing and consumers may find alternatives to fulfill needs.

The causes for free market failure may be resulted from following factors like:

• positive and negative externalities,
• environmental concerns,
• lack of public goods,
• under-supply of merit goods,
• over-supply of demerit products and
• misuse of monopoly power.