Answer to Question #220334 in Macroeconomics for Biscaro

Question

“Market inefficiency is necessary but not sufficient condition for government intervention”.
Discuss four reasons in view of this assertion.

Answer 1

Market failures are a prerequisite for government involvement, but they are not sufficient. Externalities, which derive entirely from transaction cost, or the expense of picking, organizing, negotiating, and entering into contracts, are blamed by the authors for market failures.