Which of the following is NOT considered a market failure discussed in relation to externalities?

• A. Public goods
• B. Perfect competition
• C. Monopoly power
• D. Negative externalities

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of market failure. Market failure occurs when the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss.
2. Step 2: Review the common types of market failures related to externalities. These typically include public goods (which are non-excludable and non-rivalrous), negative externalities (costs imposed on third parties), and monopoly power (where a single firm controls the market, leading to inefficiency).
3. Step 3: Analyze each option in the problem: Public goods, Monopoly power, Negative externalities, and Perfect competition.
4. Step 4: Recognize that perfect competition is a market structure characterized by many buyers and sellers, free entry and exit, and no single agent can influence prices. It is generally considered an ideal market scenario that leads to efficient outcomes, not a market failure.
5. Step 5: Conclude that among the options, perfect competition is NOT considered a market failure related to externalities, while the others are classic examples of market failures.