Markets sometimes fail to exist because of________?
Correct answer: C. a and b
- A. externalities
- B. the free-rider problem
- C. a and b
- D. a and c
Explanation
Externalities can prevent markets from reflecting all social costs and benefits, while the free-rider problem can make people unwilling to pay for a collectively available good. Either problem can cause a market to fail or not arise.
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Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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