When externalities cause markets to be inefficient,
A)government action is always needed to solve the problem.
B)private solutions can be developed to solve the problem.
C)given enough time, externalities can be solved through normal market adjustments.
D)there is no way to eliminate the problem of externalities in a market.

Question

Quizplus · Accepted Answer

Externalities can cause markets to be inefficient because they result in costs or benefits that are not included in the market price. Private solutions, such as bargaining or the creation of property rights, can help to solve the problem of externalities by internalizing the costs or benefits. Government intervention may also be necessary in some cases, but private solutions should be explored first. While externalities may never be completely eliminated, they can be reduced through market adjustments and private solutions.

When Externalities Cause Markets to Be Inefficient