When the Market Does Not Lead to an Optimal Allocation

question 105

Multiple Choice

When the market does not lead to an optimal allocation of resources,there must be

• A)Too much regulation.
• B)A market failure.
• C)Proper antitrust laws in place.

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Definitions:

Positive Externality

A beneficial effect experienced by a third party who did not choose to incur that benefit, often resulting from an individual's or firm's actions.

Corrective Tax

A tax designed to internalize externalities, effectively correcting market outcomes that might otherwise result in social inefficiency.

Command-And-Control Policies

Regulatory strategies where the government sets specific limits and controls on emissions or discharges, often requiring technology or methods to be used.

Corrective Taxes

Taxes imposed to correct the market outcomes by accounting for externalities and bringing the social costs and benefits into balance.