Final answer:
The correct answer is option C. Market failures occur when markets don’t operate efficiently due to reasons such as inadequate competition, lack of information, resource immobility, and externalities. While government intervention can sometimes lead to market inefficiency, it is also used to correct market failures.
Step-by-step explanation:
Market failures occur when markets don’t operate efficiently. This can happen for various reasons, including inadequate competition among producers, lack of information for consumers and sellers, immobility of resources, and the occurrence of externalities. Externalities are costs or benefits affecting a party who did not choose to incur them. The free market operates ideally when there is sufficient competition, when consumers and producers have enough information about the products and services, when resources can move freely, and when prices reflect the true cost of production.
Government intervention can be both a cause and a solution to market failures. Sometimes the government steps in to control prices to prevent them from becoming excessively high or low, which can result in unintended consequences affecting the market's efficiency. It is important to note that not all market interventions by the government are failures; they can sometimes correct failures in the market, such as regulating monopolies or providing public goods and services.