Question

For which of the following goods, can markets not be efficient?

• A. Packaged water
• B. Electricity supply at home
• C. Air
• D. Petrol
• E. All of the above
• A. Public intervention is the panacea when market fails.
• B. Adverse selection problems as well as moral hazard problems may not arise in competitive markets.
• C. Strategic voting is nothing but a non-monetary incentive mechanism.
• D. Lack of access to private information regarding preferences of agent leads to incentive problem.
• J. Public regulations may address problems associated with natural monopoly.
• A. Statement 1 is an example of market failure and Statement 2 corroborates Statement 1.
• B. Statement 1 is an example of ‘adverse selection problem’ and Statement 2 is an example of ‘moral hazard problem’.
• C. Statement 1 is an example of market failure while Statement 2 suggests one way of reducing the problem.
• D. Statement 1 is an example of public good and Statement 2 is an example of private good.
• O. In Statement 1 the principal is ‘factory’ and in Statement 2 the principal is ‘government’.

Answer 1

The Correct Option is C

Markets function efficiently when goods are excludable (buyers can be prevented from consuming without payment) and rivalrous (one person’s consumption reduces availability for others).
Packaged water is excludable and rivalrous, so it can be efficiently allocated through markets.
Electricity supply at home can be priced and supplied efficiently by regulated markets.
Petrol is also sold through markets and is both excludable and rivalrous.
Air, however, is a public good. It is non-excludable (nobody can be prevented from breathing it) and non-rivalrous (one person’s use does not diminish another’s). Because of this, markets cannot allocate it efficiently — leading to issues like pollution (negative externality). Thus, the correct answer is: \[ \boxed{\text{Air}} \]

Answer 2

- The paragraph does not directly state that public intervention is the absolute solution to market failures, hence option (A) cannot be conclusively derived from the text.
- Other options, such as (B), (C), (D), and (E), all align with possible inferences or common discussions related to market and economic problems.
\[ \boxed{\text{Option A is not concluded.}} \]

Answer 3

Statement 1: Factories dumping waste in nearby water bodies is a classic case of market failure, where negative externalities (pollution) are not accounted for in market transactions.
Statement 2: The government proposes tax benefits for eco-friendly practices, which is an intervention designed to internalize externalities and reduce the problem of pollution.
- Option A: Incorrect — Statement 2 does not corroborate Statement 1; rather, it suggests a solution.
- Option B: Incorrect — adverse selection and moral hazard do not apply here.
- Option C: Correct — this precisely captures the relationship.
- Option D: Incorrect — this is not about public vs. private goods.
- Option E: Incorrect — principal-agent terminology does not apply here.
\[ \boxed{\text{Statement 1 shows market failure, Statement 2 suggests a corrective measure.}} \]