When are externalities present in a market
A)whenever a shortage exists
B)whenever the price is higher than equilibrium price
C)whenever private costs differ from social costs
D)whenever the seller is not making a profit

Question

Quizplus · Accepted Answer

Externalities are present in a market when private costs differ from social costs. Private costs are the costs that the producer or consumer of a good or service pays, while social costs refer to the full costs to society, including externalities such as pollution or traffic congestion. When private costs do not reflect social costs, there is a market failure and resources may be allocated inefficiently. Choices A, B, and D are not correct because they do not necessarily indicate the presence of externalities in a market.

When Are Externalities Present in a Market