Which scenario describes a market failure?

A market failure occurs when the allocation of goods and services by a free market is not efficient, leading to a net loss in economic welfare. The scenario where firms cannot provide essential services due to lack of competition accurately captures this concept. In a competitive market, firms typically provide a range of goods and services, which encourages efficiency and innovation. However, if competition is lacking, it can lead to monopolies or oligopolies, where firms might limit production or raise prices, ultimately preventing essential services from being adequately provided. This situation results in unsatisfied demand and creates an economic inefficiency because resources are not being used in a way that maximizes welfare.

The other scenarios do not illustrate market failure. Normal profits indicate that firms are covering their costs, including opportunity costs, which suggests a healthy market environment. When marginal cost equals marginal revenue, it denotes that firms are maximizing their profits efficiently, which is a hallmark of an efficient market. Lastly, consumer satisfaction with purchases reflects a well-functioning market where supply meets demand effectively; thus, it does not suggest a market failure.