A knowledge problem exists when:

• A. normative statements can be proven true or false using empirical evidence
• B. markets always reach equilibrium without any intervention
• C. individuals or policymakers lack sufficient information to make fully informed decisions
• D. all economic agents have perfect foresight about future events

Answer: (C)

Verified step by step guidance

1. Understand the concept of a 'knowledge problem' in microeconomics: it refers to situations where individuals or policymakers do not have enough information to make fully informed decisions.
2. Review each given statement and analyze whether it correctly describes a knowledge problem:
3. 1. 'Normative statements can be proven true or false using empirical evidence' – this relates to the difference between normative and positive economics, not directly to knowledge problems.
4. 2. 'Markets always reach equilibrium without any intervention' – this is a statement about market efficiency and equilibrium, not about knowledge limitations.
5. 3. 'Individuals or policymakers lack sufficient information to make fully informed decisions' – this directly captures the essence of a knowledge problem.
6. 4. 'All economic agents have perfect foresight about future events' – this is an unrealistic assumption that contradicts the existence of knowledge problems.