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Which of the following is an example of market failure?

Correct Answer: Prices do not reflect the full social cost of production

Explanation:

Prices do not reflect the full social cost of production is an example of Market failure.


 


A market failure occurs when the supply of a good or service is insufficient to meet demand. This results in an inefficient distribution of resources among market participants.


It also occurs if externalities are not accounted for.


If a firm fails to maximize its profits this is not a general market failure.


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