Which of the following are examples of market failure?

• A. No barriers to entry or exit in markets
• B. Consumers and producers having complete information
• C. Negative externalities such as pollution
• D. Perfect competition in all markets

Answer: (C)

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: Identify characteristics that typically indicate market failure, such as externalities (positive or negative), public goods, information asymmetry, or market power (monopolies).
3. Step 3: Analyze each option: 'No barriers to entry or exit' and 'Consumers and producers having complete information' describe conditions for perfect competition, which usually leads to efficient market outcomes, not failure.
4. Step 4: Recognize that 'Negative externalities such as pollution' represent a classic example of market failure because the social cost exceeds the private cost, causing overproduction and welfare loss.
5. Step 5: Conclude that 'Perfect competition in all markets' implies efficient outcomes, so it is not an example of market failure.