Why does the government need to handle market failures?(1 point)

Question

Responses

The natural forces of a free market tend to over correct for market failures.
The natural forces of a free market tend to over correct for market failures.

Market failures occur when goods or services are excludable.
Market failures occur when goods or services are excludable.

The natural forces of a free market do not tend to fix market failures due to individuals and producers making decisions based on their own self interest.
The natural forces of a free market do not tend to fix market failures due to individuals and producers making decisions based on their own self interest.

Market failures indicate a scarcity of resources, so it must be managed.

Answer 1

The correct response is:

The natural forces of a free market do not tend to fix market failures due to individuals and producers making decisions based on their own self interest.

This response accurately captures the reason why government intervention is often necessary to address market failures, which can arise from issues like externalities, public goods, and information asymmetries. In these situations, the actions of individuals and firms may not lead to optimal outcomes for society as a whole, necessitating governmental involvement to correct these inefficiencies.