External costs occur because:
A) a good's costs are not fully reflected by its equilibrium price.
B) a good's costs are fully reflected by its equilibrium price.
C) the demand price reflects both private benefits to buyers and external benefits to nonbuyers.
D) the market price reflects both private costs to sellers and external costs to nonsellers.

Question

Quizplus · Accepted Answer

External costs occur when the full cost of producing a good is not reflected in the market price (equilibrium price). This can happen when there are costs imposed on society that are not directly borne by the producer or consumer, such as environmental damage or health risks. As a result, the market price of the good does not fully account for these external costs, leading to inefficiencies and potential market failures.

External Costs Occur Because