What is true with market failure?  A. the market becomes more efficient in allocating the resources to its best uses B. there is an overproduction of goods and services with positive externalities C. there is an underproduction of goods and services with negative externalities D. there is market concentration or less competition E. no correct answer

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Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.