Market failure may occur because:
A)individual actions have side effects that are not properly taken into account by the market.
B)one party to a trade benefits more than another.
C)all goods are suited for efficient management by markets.
D)of regulated self-interest.

Question

Quizplus · Accepted Answer

Market failure occurs when the free market does not allocate resources in the most efficient way. This can happen because individual actions have side effects that are not properly taken into account by the market, such as pollution or the depletion of natural resources. Therefore, choice A is the correct answer. B is incorrect because unequal benefits from trade are not a form of market failure, but rather a standard feature of trade. C is incorrect because some goods may be better suited for government intervention or other forms of outside intervention than for market management. D is incorrect because regulated self-interest may actually lead to better market outcomes in some cases, rather than causing market failure.

Market Failure May Occur Because