Socially inefficient outcomes may occur in markets where there are:
A) negative externalities present.
B) asymmetric information problems.
C) positive externalities present.
D) any of the above.

Question

Quizplus · Accepted Answer

All three factors - negative externalities, asymmetric information problems, and positive externalities - can lead to socially inefficient outcomes in markets. Negative externalities occur when the production or consumption of a good imposes costs on third parties, causing the market to produce more than the socially optimal level. Asymmetric information problems occur when one party in a transaction has more information than the other, leading to market failure. Positive externalities occur when the production or consumption of a good generates benefits for third parties, causing the market to produce less than the socially optimal level.

Socially Inefficient Outcomes May Occur in Markets Where There Are