A government is considering policies to address various microeconomic market failures. The table below outlines four different market failure situations, their social consequences, and a proposed policy response.
| Situation | Type of market failure | Consequences of failure | Proposed Government Intervention |
|---|---|---|---|
| A | Factor immobility | Structural unemployment | Subsidies for vocational retraining |
| B | Public goods | Complete market failure (free-rider problem) | Direct state provision funded by taxation |
| C | Merit goods | Under-consumption and welfare loss | Imposition of an indirect tax |
| D | Negative production externalities | Over-production and external costs | Tradable pollution permits |
In which one of the situations, A, B, C or D, is the proposed government intervention not appropriate?
Situation A
Situation B
Situation C
Situation D
