Why do U.S. economists commonly refer to externalities as an example of market failure?
A) firms that are required to pay social costs of externalities produce more
B) externalities present a case where markets consider all social costs
C) externalities present a case where markets only consider some social costs
D) firms avoid having to pay social costs of externalities by lowering prices

Question

Quizplus · Accepted Answer

Externalities present a situation where the full social costs (or benefits) of a market activity are not reflected in market prices. This means that the market outcome does not maximize societal welfare, leading to a market failure.

Why Do US Economists Commonly Refer to Externalities as an Example of Example