External costs are a problem that often suggests government action because the external costs are not included in the market price of a good.

Question

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External costs are costs incurred by society as a whole that are not reflected in the market price of a good, such as pollution or damage to public health. These costs can lead to market failure, where the market fails to allocate goods and resources efficiently. In such cases, government intervention may be necessary to address the external costs and restore efficient allocation of resources.

External Costs Are a Problem That Often Suggests Government Action