Market Dominance Causes Pricing Inefficiencies

Steps:

• Identify core features of a market economy: resource allocation via supply and demand without central planning.
• Recognize disadvantages: failures like monopolies where firms control markets.
• Evaluate choices for true drawbacks: check if they align with lack of competition or externalities.
• Select option showing reduced consumer benefits from power imbalances.

Why C is correct:

• In market economies, lack of competition allows dominant firms (monopolies) to set prices above marginal cost, reducing output and raising prices per monopoly pricing theory.

Why the others are wrong:

• A: Entrepreneurs are driven by profit incentives to meet consumer demand in competitive markets.
• B: Pure market systems minimize government intervention; this critiques mixed economies.
• D: Markets overproduce demerit goods (e.g., tobacco) due to externalities, not underproduction.

Final answer: C