When Faced with a Market Failure,the Government

question 13

Multiple Choice

When faced with a market failure,the government:

• A) usually tries to redistribute the existing surplus more fairly.
• B) always takes over the market.
• C) often encourages the well-functioning firms to stay through protectionist policy.
• D) generally enacts thoughtful policy in order to create market efficiency.

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Definitions:

Long-Run Equilibrium

A state in a market where all adjustments have been made and all inputs, including physical capital and labor, can be varied to reach an optimal output level.

Short-Run Equilibrium

The state in which the quantity supplied equals the quantity demanded within a short time frame, often with some factors held constant.

Economic Loss

The monetary value of the decrease in welfare or trade-offs resulting from an economic transaction or decision, beyond just the physical loss.

Product Differentiation

The strategy of setting a product or service apart from others in the industry to enhance its attractiveness to a specific target group.