Question

The government responds to market failures and ensure economic stability by limiting the effects of market failures such as ______or a __________of market conditions.

A) oligopoly / monopolies

B) imperfect business competition / lack of consumer knowledge

C) increased standard of living / reversal

D) redistribution of income / collapse

Answer 1

Government intervention is used to counteract market failures such as a redistribution of income and/or a market collapse.

Answer 2

The correct answer is letter "D": redistribution of income / collapse.

Step-by-step explanation:

Market Failure happens when the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This prevents equilibrium in the market. Several factors can contribute to a market failure such as negative and positive externalities, monopolies, impairment or immobility of production inputs, and market information breakdown.

Minimum wage loss is often sided as an example of impairment or immobility of production inputs that cost market failure. Often the minimum wage is set higher than the equilibrium price for a particular job. Those critical or minimal wage losses argue that this causes employers to hire fewer employees. Then, the government has to intervene in setting regulations on how to redistribute income.