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Homework answers / question archive / A market failure is a situation in which: a
A market failure is a situation in which:
a. the market equilibrium leads to either too many or too few resources going towards producing the good or service.
b. resources are being efficiently allocated, but some companies are forced to shut down.
c. the government must take actions to correct the failures of the market in a particular industry.
d. there is no free entry or exit into an industry.
In the case of market failure, the equilibrium leads to either too many or too few resources going towards producing the good or service. There is an inefficient allocation of resources.
Option (b) is incorrect.
In the presence of market failure resources are not being efficiently allocated. Market failures can be misleading. When the market failure is in excess, the firm may have to shut down their operations.
Option (c) is incorrect.
The government's actions to correct the failures of the market in a particular industry is a remedy towards market failure. It is not regarded as a situation of market failure. Sometimes imperfect outcomes can arise in the market due to government intervention.
Option (d) is incorrect.
Not-free or free entry or exit has nothing to do with a market failure.
