Question

Choose the correct answer / answers:

D. An example of a market failure exists if
(a) an undertaking charges and receives different prices for the same product from different consumers
(b) a luxury restaurant charges very high prices for a New Year's Eve meal.
c) managers earn much more than unskilled workers.
d) managers earn much more than professors of economics.

E. An example of market failures is
a) imperfect information of consumers about the characteristics of the products
b) imperfect information of the producers about the consumers' wishes.
c) imperfect information of insurance companies about the risks of their customers.
d) imperfect information of female entrepreneurs about the performance of their employees.

Answer 1

Answer-D) Correct option is 'a'

An example of a market failure exists if an undertaking charges and receives different prices for the same product from different consumers. This is the price discrimination under monopoly, when a firm charges a different price to different groups of consumer for an identical goods or services. Market failure occurs due to inefficiency in the allocation of the goods and services. Market failure caused by externality and market power.

Answer-E) Correct options are (a), (c), (d)

An example of market failures is :

(a) Imperfect information of consumers about the characteristics of the products. Market failure caused by imperfect information, consumer doesn't have the perfect information about the characteristics of the products.

(c) Imperfect information of insurance companies about the risks of their customers.This is the problem of Asymmetric of information means that one party has more or better information than the other when making decision and transaction. The imperfect information cause an imbalance of power. When a market experiences an imbalance it can lead to market failure.

(d) Imperfect information of female entrepreneurs about the performance of their employees. This is the problem of Moral hazard results from a situation of a hidden action. Hidden actions are actions taken by one side of an economic relationship that the other side of the relationship cannot observe.