ObjectiveMcq
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Which of the following is an example of market failure?
Correct Answer: D — Prices do not reflect the full social cost of production
Correct Answer: D
Market failure occurs when the free market fails to allocate resources efficiently. When prices do not reflect the full social cost of production — for example, when a factory pollutes a river without bearing the cost — the market produces more of the good than is socially optimal. This is a classic example of a negative externality causing market failure. The other options describe business outcomes or normal price movements, not market failures.