When negative externalities are present, market failure often occurs because:
A) the cost borne by a third party not involved in the trade is not reflected in the market price.
B) the cost borne by a third party not involved in the trade is reflected in the market price.
C) the existence of imports from foreign countries takes jobs (and income) away from U.S. citizens.
D) consumers will consume the good at a level at which their individual marginal benefits exceed the marginal costs borne by the firm producing the good.

Question

Quizplus · Accepted Answer

Negative externalities lead to market failure because the external costs imposed on third parties are not included in the market price, resulting in overconsumption or overproduction of the good.

When Negative Externalities Are Present, Market Failure Often Occurs Because