A market failure may be due to the existence of

Question

Quizplus · Accepted Answer

Externalities refer to costs or benefits that are not taken into account by the market. This can lead to market failure as the market fails to allocate resources efficiently. For example, if a factory produces goods but also releases pollutants into the air, the cost of the pollution is not reflected in the price of the goods. As a result, the market may produce too much of these goods and not enough of other goods that would better account for the cost of pollution.

A Market Failure May Be Due to the Existence of