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    Market Failures and Government Intervention

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    If markets are efficient, then why should the government ever intervene in the economy?

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    Solution Preview

    Because of market failures. In some cases, pure self-interest in a market economy does not lead to the level of production most beneficial to society. Examples include:

    1. Monopoly power. A firm that grows large enough to control the entire market can decrease production and raise prices to increase ...

    Solution Summary

    This solution explains how and why the government should intervene in the economy in response to three types of market failures.