Question

Causes of market failure includea.market power and incorrect forecasts of consumer demand. b.incorrect forecasts of consumer demand and foreign competition. c.externalities and market power. d.externalities and foreign competition.

Answer 1

Answer:

The correct answer is C

Explanation:

Market failure is the situation of economic which is described as the inefficient distribution of the goods and services in the free market. Under this the incentives of the individual for rational behavior does not lead to the rational outcomes for the group of people.

The market failure occurs because of negative as well as positive externalities, lack of public goods, abuse of the monopoly power, environmental concerns, under provision of merit goods and over provision of   demerit goods.

So, from the above options, the cause of the market failure involve the market power and the externalities.