Externalities mainly arise because:
A)consumers have more market power than sellers.
B)producers have more market power than consumers.
C)of inadequate provision of public goods.
D)of inappropriate assignment of property rights.

Question

Quizplus · Accepted Answer

Externalities occur due to the inappropriate assignment of property rights. This means that the cost or benefit of a good or service is not fully reflected in its market price leading to market inefficiencies. For example, if a factory pollutes a nearby river, the cost of cleaning up the river is not fully borne by the factory but by the individuals who use the river for their daily needs. This leads to a negative externality where the cost to society is greater than the cost to the factory. With appropriate property rights assigned, the factory would bear the full cost of the pollution leading to a more efficient outcome.

Externalities Mainly Arise Because