Question

When do demand side market failures occur?

1) When there is a lack of information about the product or service
2) When there are external costs or benefits that are not accounted for
3) When there is a monopoly or oligopoly in the market
4) When there is a lack of competition in the market

Answer 1

Demand side market failures occur when there is a lack of information, external costs or benefits are not accounted for, there is a monopoly or oligopoly, or there is a lack of competition in the market.

Step-by-step explanation:

Demand side market failures occur in several situations:

1. When there is a lack of information about the product or service: Inadequate information can lead to consumers making decisions that do not reflect their true preferences or needs.
2. When there are external costs or benefits that are not accounted for: Externalities occur when the actions of one party impose costs or benefits on others, without being reflected in the market price.
3. When there is a monopoly or oligopoly in the market: Monopolies and oligopolies have market power and can restrict competition, leading to inefficiencies and higher prices for consumers.
4. When there is a lack of competition in the market: Inadequate competition can result in higher prices, reduced choices, and lower quality products or services.