Which of the following could be a reason for the type of market failure known as government failure?

• A. There are no externalities present in the market
• B. Policymakers lack sufficient information to make optimal decisions
• C. Consumers and producers always act rationally
• D. Markets always allocate resources efficiently without intervention

Answer: (B)

Verified step by step guidance

1. Understand the concept of government failure: it occurs when government intervention in the market leads to a less efficient outcome than if the market were left alone.
2. Recognize that government failure often arises due to issues such as lack of information, bureaucratic inefficiencies, or unintended consequences of policies.
3. Analyze each option in the context of government failure: for example, 'Policymakers lack sufficient information to make optimal decisions' directly relates to a common cause of government failure.
4. Note that the presence or absence of externalities relates more to market failure, not government failure, so 'There are no externalities present in the market' is not a reason for government failure.
5. Conclude that the correct reason for government failure among the options is when policymakers lack sufficient information, as this can lead to suboptimal decisions and inefficient resource allocation.