In markets with externalities or public goods,
A)private benefits exceed social benefits.
B)private costs exceed social costs.
C)the private costs and benefits that decision makers face diverge from the social costs and benefits.
D)the private costs and benefits that decision makers face are the same as the social costs and benefits.

Question

Quizplus · Accepted Answer

In markets with externalities or public goods, the private costs and benefits that decision makers face diverge from the social costs and benefits. This is because externalities and public goods affect parties beyond the buyer and seller, so the costs and benefits to society as a whole are not reflected in the private exchange between the two parties. In markets with externalities or public goods, the private costs and benefits that decision makers face diverge from the social costs and benefits. This is because externalities and public goods have costs and benefits that are not fully reflected in the market price or decision-making process. Private actors only consider their own costs and benefits in their decisions, and do not account for the costs and benefits that affect others in the society, leading to a divergence between private and social costs and benefits.

In Markets with Externalities or Public Goods