Answer to Question #89093 in Macroeconomics for prashanthi

Question

Market failure is usually the result of:

Select one:
a. Externalities
b. Public goods
c. Market power
d. Asymmetric information

Answer 1

PUBLIC GOOD

This is a good whose consumption by one individual does not affect consumption to another: it is non – rival and also once it is provided nobody can be prevented from using it: it is non – excludable.

It results in market failure as it gives rise to a ‘free - rider problem.’ This is where people want the good but no one is willing to pay for it and they cannot be excluded from its consumption once it has been produced. Such a good will usually not be provided in the market because no profits will be gained from its production.