The presence of external benefits may result in government action because the external benefits are not included in the market price of a good.

Question

Quizplus · Accepted Answer

External benefits, also known as positive externalities, are benefits that accrue to third parties who are not involved in the production or consumption of a good or service. These benefits are not reflected in the market price of the good or service, and therefore, the market may fail to produce an efficient outcome. As a result, the government may intervene to correct this market failure by providing subsidies or other incentives to encourage the production or consumption of the good or service that generates the external benefit.

The Presence of External Benefits May Result in Government Action