An Example of a Market Failure Due to a Firm

question 56

Multiple Choice

An example of a market failure due to a firm NOT fully bearing the costs of its production decision is

• A) a levee.
• B) pollution.
• C) profit.
• D) imperfect information.

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Definitions:

Price Effect

The impact that a change in the price of a good or service has on consumer demand for that good or service.

Oligopoly

A market structure characterized by a small number of firms that control the majority of the market share, leading to limited competition.

Prisoner's Dilemma

A scenario in game theory in which two individuals acting in their own self-interest do not produce the optimal outcome.

Nash Equilibrium

A concept in game theory where each player's strategy is optimal, given the strategies of the other players, and no player has an incentive to deviate unilaterally.