An externality can lead to
A) market failure
B) an inefficient outcome for society
C) Both answers are correct

Question

Quizplus · Accepted Answer

An externality is a cost or benefit that affects a party who did not choose to incur that cost or benefit. It can lead to market failure as the price mechanism in a free market does not take into account the external costs or benefits, and can lead to an inefficient outcome for society as a whole. Therefore, both answers are correct.

An Externality Can Lead to