External costs occur because

Name: External costs occur because
Brand: Quizplus
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Question

Quizplus · Accepted Answer

External costs occur when private costs do not reflect the full costs to society. This happens because firms do not have to pay for many of the negative consequences of their production activities, such as pollution or traffic congestion, which are borne by society as a whole. As a result, production that creates external costs may be over-utilized because firms do not take into account these additional costs.

External Costs Occur Because