In the production of peanut butter, if Peanuts 'R' Us, Inc.discards broken peanut shells onto an adjacent recreational area, this situation will most likely lead to the market failure of:
A) external cost.
B) deregulation.
C) monopoly power.
D) imperfect information.

Question

Quizplus · Accepted Answer

The situation described is an example of negative externalities, where a third party (the recreational area) incurs costs (cleaning up the discarded peanut shells) as a result of Peanuts 'R' Us, Inc.'s production of peanut butter. This is an example of an external cost, which is a form of market failure. Therefore, A is the best choice. B, deregulation, is not relevant to this situation. C, monopoly power, and D, imperfect information, are also not applicable to this scenario.

In the Production of Peanut Butter, If Peanuts 'R' Us