When externalities are present in a market, the well-being of market participants
A)and market bystanders are both directly affected.
B)and market bystanders are both indirectly affected.
C)is directly affected, and market bystanders are indirectly affected.
D)is indirectly affected, and market bystanders are directly affected.

Question

Quizplus · Accepted Answer

Externalities are costs or benefits that are not reflected in the market price of the good or service. As a result, market participants may not take into account the full costs or benefits of their actions, which can lead to inefficiencies in the market. The well-being of market participants is directly affected by the presence of externalities, as they may not be fully aware of the costs or benefits of their actions. On the other hand, market bystanders are only indirectly affected by externalities, as they may experience positive or negative effects without participating in the market. Therefore, choice C is the best answer.

When Externalities Are Present in a Market, the Well-Being of Market