Registered Environmental Manager (REM) Practice Exam

Which statement best defines an open access market failure?

1. A limited access situation where benefits are shared

2. A scenario wherein resources are openly exploited for personal gain

3. A market where prices are set by demand and supply

4. A public good that is freely available to everyone

The correct answer is: A scenario wherein resources are openly exploited for personal gain

An open access market failure occurs when resources are used without restriction, leading to their overexploitation. This concept highlights how, when resources are freely available to everyone without any regulatory measures or ownership constraints, individuals are incentivized to extract as much value as they can for their personal benefit. This often results in a depletion of the resource, as the collective demand exceeds its sustainable supply. In contrast, the other choices describe different market conditions. A limited access situation with shared benefits refers to a scenario where some regulation exists to manage resource distribution. A market defined by prices set by demand and supply relates to a traditional free market, and a public good being freely available lacks the element of exploitation central to the open access market failure. Only the scenario of open exploitation aligns with the concept of market failure due to the unsustainable use of common resources.