Unit 3・Chapter 12 Reason for government intervention in markets

Question 1

What is a Market failure, and how does it occur?

Answer 1

Market failure is when the free market does not make the best use of scarce resources—it occurs when lack of public goods, underproduction of merit goods, overconsumption of demerit goods, and information failure.

Question 2

Market failure occurs when the ________ fails to take into account all of the _____ and ________ that are necessary to produce or consume a product.

Answer 2

Market failure occurs when the price mechanism fails to take into account all of the costs and benefits that are necessary to produce or consume a product.