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Homework answers / question archive / When there is a market failure:- a
When there is a market failure:-
a. Government intervention is always beneficial.
b. A laissez-faire approach is the best policy.
c. Government intervention is beneficial only in the case of natural monopolies.
d. Government intervention is beneficial only when the marginal benefit of intervention exceeds the marginal cost.
When there is a market failure:-
d. Government intervention is beneficial only when the marginal benefit of intervention exceeds the marginal cost.
When there is a market failure government intervention is beneficial only when the marginal benefit of intervention exceeds the marginal cost.
When there is market failure in the market, the marginal cost may exceed the marginal benefit, since market failure means inefficiency in the distribution of resources in the economy. A good example is the presence of negative externality such as pollution which results from production activities of the firm but in long run, the impacts of the pollution are worse due to the emergence of killer diseases. In such a case, social benefits are less compared to social costs thus government intervention will help if the marginal benefit from their intervention in the market is more than the marginal cost.
