Homework SourseMarket failure occurs when prices of essential goods such as
Market failure occurs when:
| prices of essential goods such as gas become very high. | |
| individual actions have side effects that are not properly taken into account. | |
| mutually beneficial trades take place. | |
| a business declares bankruptcy. |
Solution
Ans is B
Externality is the action of individual that have effect on society and which is not considered in setting price.
Market failure occur when market produces a quantity where social cost is not equal to social benefit. Normally market equate private marginal cost=private marginal benefit. But we know in case of externality, social cost or social bemefit differs from pvt. In case of positive externality, social benefit>private benefit and market produces less of these goods whereAs in case of negative externality, social cost>private cost and market produces excess number compared to socail point.
