Question

1. Which of the following statements does  not represent a market failure, a situation in which the pursuit of profit will not result in a net increase in consumer satisfaction?

   		Situations in which externalities have been internalized result in an equilibrium in the exchange price between true costs and benefits.
   		The pursuit of individual self-interest results in a worse outcome than would have occurred had the behavior of the parties involved in the economic exchange been coordinated through cooperation or regulation rather than mere competition.
   		The costs of pollution, groundwater contamination and depletion, soil erosion, and nuclear waste disposal are borne by parties external to the economic exchange between buyer and seller.
   		Where there is no mechanism for pricing, for setting a value on public goods, there is no guarantee that the markets will result in the optimal satisfaction of the public interest in regard to public goods.

Answer 1

The correct options are C) & D)

C) The costs of pollution, groundwater contamination and depletion, soil erosion, and nuclear waste disposal are borne by parties external to the economic exchange between buyer and seller.

D) Where there is no mechanism for pricing, for setting a value on public goods, there is no guarantee that the markets will result in the optimal satisfaction of the public interest in regard to public goods.

Market failure refers to the inefficient distribution of goods and services in the free market. In a typical free market, the prices of goods and services are determined by the forces of supply and demand, and any change in one of the forces results in a price change and a corresponding change in the other force. The changes lead to a price equilibrium.