A Market Failure Is a Situation in Which

question 261

Multiple Choice

A market failure is a situation in which

• A) resources are being efficiently allocated, but some companies are forced to shut down.
• B) the market equilibrium leads to either too many or too few resources going towards producing the good or service.
• C) the government must take actions to correct the failures of the market in a particular industry.
• D) there is no free entry or exit into an industry.

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Definitions:

Deferred Gross Profit

The portion of gross profit on installment sales that is not recognized immediately but is deferred until cash is received.

Cost Recovery Method

An accounting method where profits are not recognized until all the costs of the goods sold are recovered.

Sales Price

The amount of money for which a product is sold to customers.

Transfer of Risks

The process in contracts where the risk of loss or damage to goods passes from the seller to the buyer.