Bachelor of General Studies (BGS) Degree Practice Exam

In the case of Facebook regulation, what was the primary market failure?

1. Inadequate data protection policies

2. Sales incentives exceeding user privacy protections

3. Regulation of advertising revenues

4. Lack of cybersecurity measures

The correct answer is: Sales incentives exceeding user privacy protections

The primary market failure in the case of Facebook regulation revolves around the imbalance between sales incentives and user privacy protections. This situation reflects a failure to take into account the negative externalities that arise from prioritizing revenue generation over safeguarding users' personal data and privacy. In many tech platforms, including Facebook, there is often a strong incentive to maximize advertising revenues through extensive data collection and analysis. This creates a scenario where the company may not adequately protect users' privacy or ensure they are fully informed about how their data is being used. As a result, users are often left vulnerable to potential misuse of their data, which is a significant concern in today's digital landscape. The economic interests of the company may overshadow the need for robust privacy measures, leading to a systemic issue within the market. While inadequate data protection policies, regulation of advertising revenues, and lack of cybersecurity measures are relevant concerns, they are not the core issue representing the market failure. The central problem lies in how financial incentives can motivate companies to prioritize profit over the essential protection of user privacy and data integrity. This misalignment creates a situation where the market does not efficiently allocate resources towards safeguarding consumers, thus highlighting the primary market failure in this context.