In a competitive market,
A)demand will always reflect all spillover costs.
B)demand will always reflect all spillover benefits.
C)supply will always reflect all spillover costs.
D)none of the above are true.

Question

In a competitive market,
A)​demand will always reflect all spillover costs.
B)​demand will always reflect all spillover benefits.
C)​supply will always reflect all spillover costs.
D)​none of the above are true.

Quizplus · Accepted Answer

In a competitive market, neither demand nor supply will always reflect all spillover costs or benefits. Spillover costs or benefits are externalities that affect parties outside of the transaction, and as such, they are not taken into account in the market price. Therefore, the market outcome may not be socially optimal.

In a Competitive Market