Markets are always able to find solutions to externality problems and thus maximize social surplus.

Question

Quizplus · Accepted Answer

While markets are effective in allocating resources and maximizing social surplus in situations where property rights are well-defined and transaction costs are low, they may fail to address the negative externalities that arise when costs or benefits of an economic activity are borne by individuals who are not parties to the market transaction. In such cases, government intervention may be necessary to achieve an efficient outcome.

Markets Are Always Able to Find Solutions to Externality Problems