When externalities are present in a market,
A)the market equilibrium maximizes the total benefit to society as a whole.
B)participants lose some market benefits to bystanders.
C)firms produce too much output.
D)the market fails to allocate resources efficiently.

Question

Quizplus · Accepted Answer

When externalities are present in a market, the market fails to allocate resources efficiently as the parties involved do not consider the costs or benefits imposed on bystanders. In such a case, the market equilibrium may not lead to the optimal outcome for society as a whole.

When Externalities Are Present in a Market