Suppose that external costs are not fully reflected in the market price of a good.This is an indication of market:
A) failure.
B) equilibrium.
C) efficiency.
D) optimality.

Question

Quizplus · Accepted Answer

If external costs are not fully reflected in the market price, it means that the market is not taking into account the full social cost of producing or consuming the good, resulting in a market failure. This is because external costs, such as pollution or congestion, are costs that are borne by society as a whole, rather than by the individuals or firms that produce or consume the good. As a result, market outcomes may be inefficient or suboptimal, as the market may produce too much or too little of the good relative to what would be socially optimal.

Suppose That External Costs Are Not Fully Reflected in the Market