If the economy relies entirely on markets to answer the WHAT question,it tends to _____ goods with external benefits and _____ goods with external costs.

Question

Quizplus · Accepted Answer

When markets only consider their own self-interest and don't take into account externalities (benefits or costs incurred by parties not involved in the transaction), they tend to underproduce goods with external benefits because the market doesn't see any direct profit from providing those benefits. On the other hand, they tend to overproduce goods with external costs because the market is not bearing the costs of those negative externalities, so they're not factored into the cost of production.

If the Economy Relies Entirely on Markets to Answer the WHAT