Question

Suppose a public good that is worth $1 billion is not produced by the market, and so the government provides it, but at a cost of $3 billion. This attempt to correct a market failure has:

Answer 1

Answer: resulted in a government failure since use of resources is now less efficient

Explanation:

Market failure is an economic situation when there is an inefficient distribution of goods and services which occurs in the free market. The main cause of market failure is disequilibrium as a result of distortion on the market.

When a public good that is worth $1 billion is not produced by the market, and so the government provides it, but at a cost of $3 billion, this attempt to correct a market failure has resulted in a government failure since use of resources is now less efficient. This is because the cost of the public good is more than its worth. This signifies wastage and results in government failure.