1.8.2 The meaning of market failure

• Market failure occurs when the price mechanism fails to allocate resources efficiently
• Negative externalities occur when the actions of producers or consumers impose costs on third parties.

  True
• Public goods are non-excludable, meaning it is impossible to prevent people from consuming them.


  True
• Market failure leads to a suboptimal outcome for society.

  True
• Externalities lead to a divergence between private and social costs
• Information asymmetry can lead to adverse selection or moral hazard
• Match the type of market failure with its example:

  Negative Externality ↔️ Air pollution from factories

  Public Good ↔️ National defense

  Information Asymmetry ↔️ Used car sales
• Market failure prevents markets from achieving socially optimal outcomes.


  True