Externalities essentially create ________.
A) non-excludability in consumption
B) non-rivalry in consumption
C) a divergence between private and social costs
D) a free-rider problem

Question

Quizplus · Accepted Answer

Externalities occur when the activities of one party have an impact on a third party without compensation. This creates a divergence between private costs (borne by the individual) and social costs (borne by society as a whole) leading to market inefficiencies.

Externalities Essentially Create ________