When the production or consumption of a good involves an externality:
A)resources are necessarily overallocated to the good.
B)resources are necessarily underallocated to the good.
C)someone not involved in buying or selling the good is affected.
D)the market will efficiently allocate resources to its production.
E)none of the above will be true.

Question

Quizplus · Accepted Answer

An externality occurs when someone not involved in buying or selling the good is affected. This can result in resources being under- or overallocated, and the market may not efficiently allocate resources to its production.

When the Production or Consumption of a Good Involves an Externality