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Economists consider governments to be “wasteful”:
(1) whenever they attempt to correct a market failure
(2) only when they overallocate resources to a project
(3) whenever they over- or underallocate resources to a project
(4) only when they underallocate resources to a project
♦ Relevant knowledge
Economic experts believe that markets function efficiently within the perfect competitive models employed in a variety of courses. But in reality, market systems fail to operate effectively. These are referred to as market failures. They can be caused by monopoliesor inadequate information, or external benefits or costs.
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Economists view governments as wasteful whenever they over allocate or under allocate resources to a project. This results in market inefficiency and deadweight loss. Hence, option 3 is correct.