Markets fail to maximize total surplus when:
A) individual choices impose costs or benefits on others.
B) society's choices impose costs or benefits on other societies.
C) when all costs and benefits are received by participants in transactions.
D) producer surplus is not exactly equal to consumer surplus.

Question

Quizplus · Accepted Answer

When individual choices impose costs or benefits on others, the market may not account for these externalities and the resulting outcome may not lead to the maximization of total surplus. For example, if a factory is polluting a nearby river which affects the health and livelihood of the people living around it, the market may not factor in this cost and the resulting outcome may not be efficient or desirable.

Markets Fail to Maximize Total Surplus When