Question

What is a market​ failure?

A. It refers to a situation where an entire sector of the economy​ (for example, the airline​ industry) collapses because of some unforeseen event.
B. It refers the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.
C. It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost.
D. It refers to a breakdown in a market economy because of widespread corruption in gover

Answer 1

The answer is: B) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefits equals marginal social costs.

Step-by-step explanation:

A market failure occurs when the allocation of goods and services by a free market is not completely efficient. In order to be completely efficient it would be impossible to reallocate resources from one individual to another without making one of the individuals worse off.

In a free market the demand and supply of products or services should be equal. At this point marginal social cost (MSC) would exceed marginal social benefit (MSB). This means that producing an extra unit of a good or service (MSC) would cost more than the benefits the consumers get from the extra unit produced (MSC).