Which of the following statements are TRUE?
I. Market prices do not correctly signal the true costs and benefits to society when external costs are present.
II. Market prices do not correctly signal the true costs and benefits to society when external benefits are present.
III. Taxes and subsidies can adjust prices so that they do send the correct signals.
A) I and III only
B) II and III only
C) I only
D) I, II, and III

Question

Quizplus · Accepted Answer

External costs and benefits, also known as externalities, cause market prices to not reflect the true costs and benefits to society. Taxes and subsidies can help correct these market failures by internalizing the externalities, thus aligning private costs and benefits with social costs and benefits.

Which of the Following Statements Are TRUE