The market works efficiently in the absence of externalities if the good is

Question

Quizplus · Accepted Answer

In the absence of externalities, the market works efficiently for goods that are both rival and excludable. Rival means that consumption by one person reduces the availability of the good for others, and excludable means that people can be prevented from using the good. For goods that are nonrival, such as public goods, there is a free-rider problem, where people can benefit from the good without contributing to its provision, which creates inefficiencies in the market. Similarly, for goods that are nonexcludable, such as common resources or public goods, people cannot be prevented from using the good, which leads to overuse and depletion, also causing market inefficiencies. Therefore, the only option that satisfies both criteria of rival and excludable is A.

The Market Works Efficiently in the Absence of Externalities If