When private solutions fail to arise, an externality will:
A)move consumption and production away from the market equilibrium
B)move consumption away from the equilibrium quantity produced
C)move consumption towards the private cost
D)move consumption and production away from the socially optimal equilibrium

Question

Quizplus · Accepted Answer

When private solutions fail to arise, there will be a divergence between the private and social costs and benefits. This will lead to a market failure where the market equilibrium will not coincide with the socially optimal outcome. As a result, consumption and production will move away from the socially optimal equilibrium.

When Private Solutions Fail to Arise, an Externality Will