Causes of market failure include: A) externalities and market power, B) market power and incorrect forecasts of consumer demand, C) externalities and foreign competition, D) incorrect forecasts of consumer demand and foreign competition

The answer is A) externalities and market power,

Market failure will lead to inefficient resource allocation and economic loss to society. In externalities, the social cost of production or social benefit to a third party is more than the private cost or private benefit as a result of the inefficient allocation of resources. In a monopoly, the equilibrium quantity will always be lower than the competitive market due to the downward sloping market demand causing market failure.

Let us analyze the incorrect options.

B) Market power is one of the factors of market failure, but not incorrect forecasts of consumer demand as the firm can adjust its production schedule in the long run.

C) Externalities is one of the factors of market failure, but not a foreign competition as the firm with the most economical costs will survive and attain efficient utilization of resources.

D) Incorrect forecasts of consumer demand and foreign competition are not factors of market failure as explained in the other options.