Markets are often inefficient when external costs are present because:
A) externalities cannot be corrected without government regulation.
B) social costs exceed private costs at the private market solution.
C) private costs exceed social costs at the private market solution.
D) production externalities lead to consumption externalities.

Question

Quizplus · Accepted Answer

When external costs are present, the private market solution does not take into account these costs, which leads to a situation where the social costs exceed the private costs. In other words, the cost to society as a whole is greater than the cost to the individual producers and consumers. This is why markets are often inefficient when external costs are present.

Markets Are Often Inefficient When External Costs Are Present Because