Market Failure occurs when:
Options
AMarket allocates resources efficiently
BMarket fails to allocate resources efficiently
CGovernment intervenes
DPrices range freely
For any discrepancies in this question, email contact@cadada.in
Public FinanceMTP - Dec 2023 (Inter)Question 132 of 20
All Questions Correct Answer
✅ Option b — Market fails to allocate resources efficiently
All Options:
- AMarket allocates resources efficiently
- BMarket fails to allocate resources efficiently
- CGovernment intervenes
- DPrices range freely
Detailed Solution & Explanation
To understand market failure, we need to consider the concept of efficient allocation of resources.
• Market failure refers to a situation where the market does not allocate resources in the most efficient way, leading to a loss of economic welfare.
• This can occur due to various reasons such as externalities, information asymmetry, or monopoly power, which distort the market mechanism and prevent it from achieving an optimal allocation of resources.
• The correct answer is based on the definition of market failure, which is closely related to the concept of economic efficiency and the idea that markets can sometimes fail to achieve this efficiency.
The correct answer is right because it accurately reflects the definition of market failure, which is a key concept in business economics.
• Option A is incorrect because market failure is the opposite of efficient allocation of resources, and option D is also incorrect because free-ranging prices do not necessarily guarantee efficient allocation of resources.
About This Chapter: Public Finance
Paper
Paper 4: Business Economics
Weightage
10%
Key Topics
Fiscal Policy, Budget, Market Failure
This chapter deals with government finances — how the government earns (taxation) and spends (expenditure) money. Key topics include Fiscal Policy, types of taxes (Direct and Indirect), the Union Budget, Public Debt, and the concept of Market Failure and how government intervention corrects it.
View Official ICAI SyllabusExam Strategy Tip
Focus on the difference between Revenue and Capital items in the budget. Understand Fiscal Deficit and its implications. Tax-related MCQs are commonly asked.
More Questions from Public Finance
Ready to Master Public Finance?
Practice all 20 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.
Start Practicing — It's Free