Answer to Question #242305 in Macroeconomics for varoujan02

Question

Identify three strengths of a market economy. Define and give a current example of a market failure.

Answer 1

Strengths:

• Determination of income distribution.
• Rationalization of goods and resources.
• Give signals to investment.

Market failure is a situation that is characterized by an inefficient distribution of goods and services in a free market environment.

A current example of market failure is whereby dairy farmers produce excess dairy products than consumers require due to subsidization of the production process. The government is thus forced to buy the surplus.