If the costs of externalities like air pollution, ground water contamination and depletion, soil erosion, and nuclear waste disposal are borne by parties who are not involved in the exchange between buyer and seller, the exchange price does not represent an equilibrium between true costs and benefits.

Question

Quizplus · Accepted Answer

When externalities such as air pollution and soil erosion are not accounted for in the exchange price, the true costs are not reflected, leading to a price that does not represent an equilibrium between the actual costs and benefits. This is because externalities impose costs or benefits on third parties not involved in the transaction, distorting the market outcome.

If the Costs of Externalities Like Air Pollution, Ground Water