Markets fail when externalities are present
A) because all of the costs and benefits of producing a good are reflected in the market price.
B) because some of the costs and benefits of producing a good are not reflected in the market price.
C) only if they are negative; positive externalities are not market failures.
D) because profits are not maximized.
E) if the positive externalities are less than the negative externalities.

Question

Quizplus · Accepted Answer

Externalities cause market failure because they result in costs or benefits that are not captured in the market price, leading to overproduction or underproduction.

Markets Fail When Externalities Are Present