Market failure is said to occur whenever: prices rise some consumers who want a good do not obtain it because the price is higher than they are willing to pay. private markets do not allocate resources in the most economically desirable way. government intervenes in the functioning of private markets.

Question

Kyler Dorsey

Business

11 May, 19:46

Market failure is said to occur whenever: prices rise some consumers who want a good do not obtain it because the price is higher than they are willing to pay. private markets do not allocate resources in the most economically desirable way. government intervenes in the functioning of private markets.

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Answers (1)

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Lauren Forbes · Answer 1

private markets do not allocate resources in the most economically desirable way.

Explanation:

Market failure is the economic situation where a market cannot produce an efficient natural allocation. This is explained according to microeconomic theory, which argues that government should interfere as little as possible and let the market allocate resources efficiently. However, in some situations the market fails to allocate resources and the government must intervene, these situations are market failures.

A market failure can occur in a number of different situations. Most of the time, this situation will give advantages to some and cause damage to most. An example of market failure is the formation of cartels, in which companies come together to combine prices. Thus, competition ceases to exist and resources are allocated inefficiently, tending to harm consumers.