One cause of allocative inefficiency is

Question

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Positive or negative externalities occur when the production or consumption of a good imposes costs or benefits on third parties not directly involved in the transaction. This leads to a divergence between social and private costs or benefits and can result in an inefficient allocation of resources. For example, a firm that pollutes the environment is not paying the full social cost of its production, leading to an overproduction of the good in question. Similarly, a vaccine that prevents the spread of a disease creates positive externalities by reducing the transmission of the disease to others, but these benefits are not reflected in the private cost of the vaccine and may result in an underproduction of the vaccine.

One Cause of Allocative Inefficiency Is