Externalities
A)cause markets to fail to allocate resources efficiently.
B)cause equilibrium prices to be too high.
C)benefit producers at the expense of consumers.
D)cause equilibrium prices to be too low.

Question

Quizplus · Accepted Answer

Externalities can cause markets to fail to allocate resources efficiently because they involve costs or benefits that are not reflected in market prices, leading to a divergence between private and social costs/benefits. As a result, market equilibrium does not achieve allocative efficiency. Choices B, C, and D are incorrect because they do not accurately describe the effects of externalities.