In the case of either an external cost or an external benefit,the invisible hand fails to generate the efficient outcome because
A) the model is not capable of incorporating externalities.
B) buyers and sellers only take their self interest into account.
C) too much is produced.
D) too little is produced.
E) the environment is treated as a common property.

Question

Quizplus · Accepted Answer

The invisible hand theory assumes that individuals act in their own self-interest and will make decisions that lead to the most efficient outcome for society. However, in the case of external costs or benefits, individuals do not take into account the impact their actions have on others, leading to an inefficient outcome. Therefore, the invisible hand fails to generate the efficient outcome because individuals are not considering the externalities.

In the Case of Either an External Cost or an External