In a free market economy,

Question

Quizplus · Accepted Answer

In a free market economy, externalities may exist as a market failure. However, policy makers can use market methods such as taxes or subsidies to correct the externalities and promote efficient resource allocation in the market. Thus, the externalities can be solved or at least reduced through policy interventions. Option A is incorrect as externalities can be solved through policy interventions. Option B is incorrect as public goods are non-rival and non-excludable with free access, and hence cannot always be efficiently provided by the private sector. Option C is incorrect as externalities can be both beneficial or harmful to society, and even if they are detrimental, they are not rare.

In a Free Market Economy