Question

Complete the sentence. "When a market failure arises because marginal social benefit exceeds the ability and willingness to​ pay, economists suggest that​" _______.A. demand increaseB. taxes be raisedC. vouchers be usedD. supply increase

Answer 1

Answer:

The correct answer is option C.

Explanation:

Market failure refers to the situation when the market is not able to efficiently allocate resources and the government has to intervene. Market failure generally happens because of the presence of externalities.  

When the marginal social cost is greater than the ability and willingness to pay, the market will fail to optimally allocate resources. The government, as a result, will intervene.  

The government will use vouchers which will cause the marginal private benefit curve to shift upwards by the size of the per-unit voucher.