On the Fourth of July, there is no fireworks display in the small town of Yankeeville, even though it would be efficient for such a display to be produced. Which of the following statements is correct?
A)The lack of a fireworks display in Yankeeville arises because of an externality.
B)The lack of a fireworks display in Yankeeville is a case of market failure.
C)In deciding not to produce a fireworks display in Yankeeville, private individuals and private firms made decisions that were privately rational but socially inefficient.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The absence of a fireworks display, despite its efficiency, suggests a market failure due to externalities, where private decisions do not align with social efficiency.

On the Fourth of July, There Is No Fireworks Display