Market failure can be caused by a

Marketing Dec 25, 2020

Market failure can be caused by

a. low consumer demand.

b. government intervention and price controls.

c. externalities and market power.

d. high prices and foreign competition.

Expert Solution

The correct answer is (c). Externalities and market power are on the list of the causes of market failure. Externalities refer to the market's imperfection due to the market offering no cost for disservice or service. As a result, misallocation of resources occurs hence causing production or consumption to reduce. In production, there are positive and negative externalities. Also, in consumption, there are positive and negative externalities.

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