A commonality between externalities and public goods is that:
A)in each case, markets are not likely to allocate resources efficiently, even though they might otherwise be competitive.
B)in each case, government agency intervention would create inefficiency compared to the market solution.
C)competitive markets are likely to be efficient in each case.
D)the invisible hand (as discussed by Adam Smith)is likely to lead to efficiency in each case.

Question

Quizplus · Accepted Answer

Both externalities and public goods are examples of market failures, where the market is not likely to allocate resources efficiently even though it might otherwise be competitive. In the case of externalities, the cost or benefit of a transaction is not fully reflected in the market price, leading to an inefficient allocation of resources. In the case of public goods, there is a free-rider problem where individuals can benefit from the good without paying for it, leading to the underproduction of the good. Hence, government intervention is often necessary to correct these market failures. Both externalities and public goods result in market failures where resources are not allocated efficiently even in competitive markets. This suggests the need for government intervention to correct these market failures.

A Commonality Between Externalities and Public Goods Is That