If a particular market is associated with an externality, the social optimum should include the wellbeing of:
A)buyers, sellers and bystanders
B)bystanders and buyers
C)bystanders and sellers
D)buyers and sellers only

Question

Quizplus · Accepted Answer

Externalities affect not just the buyers and sellers involved in a transaction but also third parties (bystanders) who are not part of the transaction. Therefore, the social optimum should consider the wellbeing of all three groups to account for the full social costs and benefits.

If a Particular Market Is Associated with an Externality, the Social