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Question: 1 / 400

In the context of DECA exams, what does the concept of "market failure" entail?

Inefficient allocation of resources

The concept of "market failure" refers specifically to situations where the allocation of goods and services by a free market is not efficient. When market failure occurs, resources are not distributed in a way that maximizes overall economic welfare. This can happen for various reasons, such as the presence of externalities (effects of a transaction that affect third parties), public goods (which are non-excludable and non-rivalrous), information asymmetries (where one party has more or better information than the other), or monopolistic markets where competition is inadequate.

In cases of market failure, goods may be underproduced or overproduced, leading to a loss of economic welfare. Therefore, the first choice captures the essence of market failure accurately by pointing out the inefficient allocation of resources as the primary issue.

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High levels of competition

Fluctuations in stock prices

Government intervention in the market

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