Market failure describes a situation in which the market itself ______________________ in a way that balances social costs and benefits.

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BlackTom AI · Accepted Answer

The question asks about market failure and how it is described in relation to balancing social costs and benefits.
First, recognize the standard definition: market failure occurs when the market, on its own, does not allocate resources efficiently from the perspective of social welfare.
Option analysis cannot proceed in the usual way here because no answer choices are provided. This means we cannot compare the proposed completion against alternatives that might reflect other economic concepts (such as externalities, public goods, imperfect competition, or information problems) to see how they would or would not balance social costs and benefits.
Nevertheless, the commonly accepted completion for the statement is that market failure describes a situation in which the market itself fails to allocate resources efficiently in a way that balances social costs and benefits. This phrasing emphasizes that the failure arises from inefficiencies in resource allocation when considering the broader social costs and benefits, rather than just private costs and benefits.
If you encounter multiple-choice options in a complete question, you would evaluate each option by asking: does this option describe inefficiency in resource allocation that leads to outcomes where social costs and benefits are not balanced? Options could reference externalities, public goods, monopoly power, or information asymmetries as sources of such inefficiency. Each incorrect choice would typically mischaracterize market balance by implying optimal allocation, private-only considerations, or the absence of any misalignment between costs and benefits.
In short, the central idea is that market failure reflects an inefficiency in resource allocation from the standpoint of social welfare, rather than a perfect balance of social costs and benefits.

ECON 203-0001 Chapter 12

Market failure describes a situation in which the market itself ______________________ in a way that balances social costs and benefits.

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