The problem with externalities is essentially one of
A)a discrepancy between private and social costs.
B)asymmetric information.
C)the inability of a firm in an industry characterized by increasing returns to scale to make positive profits if it sets price equal to marginal cost.
D)a failure of the market to generate socially valued outcomes.
E)the failure of the market to solve social problems.

Question

Quizplus · Accepted Answer

Externalities arise when the costs or benefits of a transaction are borne by a third party who did not choose to incur them. This creates a discrepancy between private costs (borne by the individual) and social costs (borne by society as a whole), leading to inefficiencies in the market.

The Problem with Externalities Is Essentially One of