Which of the following could be evidence of a market failure?
A) Resources in an economy are not fully utilised.
B) The market price of a product is above the average cost of production.
C) There is only a handful of firms competing against each other in an industry.
D) Market prices do not reflect true production costs.

Question

Quizplus · Accepted Answer

If market prices do not reflect true production costs, it could indicate a market failure known as a negative externality or a distortion in the price signal that prevents resources from being allocated efficiently.

Which of the Following Could Be Evidence of a Market