When externalities occur,economic agents:
A)disregard the external effects of their actions,but the market outcome is efficient.
B)disregard the external effects of their actions,and the market outcome is inefficient.
C)consider the external effects of their actions,and the market outcome is efficient.
D)consider the external effects of their actions,but the market outcome is inefficient.

Question

Quizplus · Accepted Answer

Externalities occur when economic agents do not take into account the external effects of their actions, which means there is a divergence between private and social costs/benefits. This leads to an inefficient market outcome, as the equilibrium level of output and price does not maximize social welfare. Therefore, choice B is the correct answer.

When Externalities Occur,economic Agents