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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 7, Problem 5QR
Textbook Problem
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Name two types of market failure. Explain why each may cause market outcomes to be inefficient.

To determine
The two types of market failures and how they cause market to fail.

Explanation of Solution

The market failure is the situation in which the market fails to perform its basic functions and become inefficient. There are many reasons for the market failure and the main two amongst them are the market power and the externalities.

The market power is the ability of the firms to determine the price level and the output. When there is market power, the firms will influence the price level in the economy and it will lead to the discrepancy between the market price and output from the equilibrium level of price and output in the economy...

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