A market with an externality can
A)underproduce or overproduce a good.
B)stabilize.
C)operate efficiently without government intervention.
D)move from a production point inside the production possibilities curve to a pareto optimal point.

Question

Quizplus · Accepted Answer

A market with an externality can result in either underproduction or overproduction of a good, which will lead to an inefficient allocation of resources. This is because the market has not taken into account the costs or benefits of the externality on society as a whole. Therefore, government intervention may be necessary to correct the market failure and ensure efficient outcomes. Option B is incorrect because stabilization does not address the issue of inefficient allocation of resources due to externalities. Option C is incorrect because, as mentioned earlier, the market may operate inefficiently without government intervention due to externalities. Option D is not relevant to the question at hand.

A Market with an Externality Can