Externalities:
A)are one of the most common causes of market failure.
B)are present in most markets.
C)are present in all but perfectly competitive markets.
D)can increase total surplus if it's positive.

Question

Quizplus · Accepted Answer

Externalities are costs or benefits imposed on third parties who are not involved in the transaction. They are a type of market failure because they cause the market to allocate resources inefficiently. Externalities can be found in almost all markets, and they are especially prevalent in situations where property rights are unclear or difficult to enforce. When externalities exist, the market will not reach an efficient outcome on its own, and government intervention may be necessary to correct the market failure.