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What is the most efficient way to correct market failures? a
What is the most efficient way to correct market failures?
a. To tighten regulations of the market operation.
b. To deregulate market operations.
c. To create economic incentives/disincentives to modify behavior of market participants.
d. To file lawsuits against market participants who do follow market regulations.
e. To allow the government to take over in the provision of goods and services.
Expert Solution
Option b. To deregulate market operations is correct.
The reason behind the correct option is that the intervention of the government in a situation where there is a market failure creates more inefficiency instead of reducing it. So, the market should be left free as it will adjust and move towards the equilibrium level in the future itself.
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