Question

Government intervention can increase total welfare when

A) there are costs or benefits that are external to the market.
B) consumers do not have perfect information about product quality.
C) a high price makes the product unaffordable for most consumers.
D) all of the above
E) A and B only

Answer 1

The correct answer is option E.

Step-by-step explanation:

The government can intervene in the market when it becomes inefficient. Though generally, markets are efficient, inefficiencies arise because of asymmetric information, moral hazard and, externalities.

The government can intervene in the market in case of positive and negative externalities. In case the consumers do not have perfect information about the qualities of a product, the government can intervene to eradicate inefficiencies.