The market's allocation of resources is
A) inefficient whenever the government intervenes
B) efficient regardless of whether externalities exist
C) efficient only when externalities exist
D) inefficient whenever externalities are present
E) dependent upon externalities

Question

Quizplus · Accepted Answer

Market allocation of resources becomes inefficient when externalities are present because externalities are costs or benefits that affect a party who did not choose to incur that cost or benefit. This leads to overproduction or underproduction from the socially optimal level, causing market failure.

The Market's Allocation of Resources Is