What Are Two Causes of Market Failure

question 203

Multiple Choice

What are two causes of market failure?

• A) externalities and market power
• B) market power and incorrect forecasts of consumer demand
• C) externalities and foreign competition
• D) government intervention and foreign competition

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Definitions:

Demand Function

A mathematical model that describes the quantity of a good or service demanded at various prices, holding other factors constant.

Substitution Effect

The substitution effect is a concept in economics that describes how consumers change their consumption patterns in response to changes in the prices of goods, opting for cheaper alternatives when prices increase.

Income

Money received, especially on a regular basis, for work, through investments, or from any other source.

Income Elasticity

A measure of how much the quantity demanded of a good responds to a change in consumers' income.