Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of
A)a market failure caused by an externality.
B)a market failure caused by market power.
C)a market failure caused by equality.
D)There is no market failure in this case.

Question

Quizplus · Accepted Answer

Air pollution from burning fossil fuels causes damages to crops and public health, which are not reflected in the market price of the fuels. This is an example of a market failure caused by an externality, where the costs of production are borne by society as a whole, rather than by the individual producers or consumers in the market. Therefore, there is a need for government intervention, such as emissions taxes or regulations, to account for these external costs and achieve a more efficient and socially optimal outcome.

Air Pollution from Burning Fossil Fuels Causes Damages to Crops