For both public goods and common resources,an externality arises because
A)something of value has no price attached to it.
B)supply exceeds demand.
C)cost-benefit analysis can only measure the cost of the free-rider problem.
D)Both a and b are correct.

Question

Quizplus · Accepted Answer

In both public goods and common resources, there is a lack of a market mechanism to allocate the good/resource efficiently. In the case of public goods, there is non-exclusivity where it is difficult to charge individuals for the use of the good. In the case of common resources, there is rivalry which creates a tragedy of the commons where individuals use more than the socially optimal amount as there is no cost to them. This lack of a market mechanism leads to an externality because something of value has no price attached to it.

For Both Public Goods and Common Resources,an Externality Arises Because