Question

Market failure occur(s) in the presence of which of the following?

• A. Externality
• B. Public good
• C. Market power
• D. Private good

Hint:

Market failure arises when there are externalities, public goods, or market power preventing efficient allocation.

Answer 1

The Correct Option is A, B, C

Step 1: Understand market failure.
Market failure occurs when the allocation of goods and services by a free market is not efficient. It may happen in the presence of externalities, public goods, or market power.
Step 2: Analyze each option.
- Option (A) is correct because externalities, such as pollution, cause market failure as they result in unaccounted costs or benefits to third parties.
- Option (B) is correct because public goods are non-excludable and non-rivalrous, which often leads to market failure because private firms will not produce them in sufficient quantity.
- Option (C) is correct because market power, such as a monopoly, can lead to inefficiency in the market as monopolists can set prices above the competitive equilibrium, reducing overall welfare.
- Option (D) is incorrect because private goods do not cause market failure; they are typically efficiently allocated by the market.
Final Answer: \[ \boxed{\text{Market failure occurs in the presence of externality, public goods, and market power.}} \]