For both public goods and common resources, an externality arises because:
A)something of value has no price attached to it
B)the goods are undervalued by society
C)the social optimum level of output is greater than market equilibrium
D)all of the above are true

Question

Quizplus · Accepted Answer

An externality arises in both public goods and common resources because something of value has no price attached to it. In the case of public goods, they are non-rival and non-excludable, meaning that once they are provided, anyone can use them without reducing the benefits available to others, and it is difficult to exclude anyone from using them. As a result, there is no market for such goods, and they are typically provided by governments or other public entities. In the case of common resources, they are rival but non-excludable, meaning that they can be used up by one person, but it is difficult to prevent others from using them. This leads to a tragedy of the commons, where individuals will overuse the resource because they do not bear the full cost of their actions. Both cases result in the externality, but in this case, the answer is A because it is the most specific and accurate.

For Both Public Goods and Common Resources, an Externality Arises