Market Failure Occurs When

question 229

Multiple Choice

Market failure occurs when:

• A) markets are competitive.
• B) private decisions do not result in an efficient allocation of scarce resources.
• C) private decisions result in an efficient allocation of scarce resources.
• D) private decisions generate the highest level of consumer satisfaction.

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Definitions:

Potential Output

The highest level of output an economy can produce without leading to inflation, when operating at full employment.

Monetary Policy

Actions undertaken by a central bank to control the money supply and interest rates to achieve macroeconomic objectives like controlling inflation, consumption, growth, and liquidity.

Wage Increases

Adjustments to employee salaries that lead to a higher rate of pay, often in response to factors like inflation, performance, and market demands.

Labor Productivity

measures the output produced per unit of labor input, indicating how efficiently labor is used in the production process.