Discussion

Explanation:

Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient – that can be improved upon from the societal point of view.
The scenario stated in statement 1 is a type of market failure where consumers and producers may fail to take into account the effects of their actions on third-parties who suffer as a result of the actions of consumers and producers attempting to pursue their own self interests.
Hence, eliminate options 2, 4 and 5.
Statement 2 suggests a method of reducing the problem stated in statement 1.
“Corroborates” meaning 'confirms or gives support to' in option A does not qualify the purpose of statement 2 and its relationship with statement 1. So, eliminate option 1.
Statement 2 gives the mitigation of the problem expressed in statement 1.
Option 3 correctly captures the relationship between the two statements.
Hence, the correct answer is option 3.

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