Externalities result because:
A)the rules of the game are not complete.
B)there is unemployment.
C)people are maximizers.
D)there are not enough resources.

Question

Quizplus · Accepted Answer

Externalities occur when the cost or benefit of a transaction is not fully borne by the parties involved in the transaction. This happens because the rules of the game (i.e. the market) are incomplete, meaning that the costs or benefits associated with the transaction are not properly accounted for. For example, pollution from a factory may impose costs on the surrounding community that are not factored into the price of the goods produced by the factory.

Externalities Result Because