When one party's economic activities on another party is not taken into account by the price system we say to have the market failure of:
A)Imperfect information
B)Externalities
C)Public goods
D)Imperfect competition

Question

Quizplus · Accepted Answer

Externalities occur when the production or consumption of a good or service by one party has an effect on a third party that is not reflected in the price of the good or service. For example, pollution from a factory affects the health of nearby residents, but the cost of that pollution is not factored into the price of the products that the factory produces. This leads to a market failure because the true cost of production is not being accounted for.

When One Party's Economic Activities on Another Party Is Not