In What Sense Do Externalities Cause the "Invisible Hand" of the Marketplace

question 207

Multiple Choice

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

• A)Externalities lead to government intervention in markets, which exacerbates the problems associated with externalities.
• B)Externalities result in prices that are too high for many consumers to pay.
• C)Markets fail to produce the maximum total benefit to society when positive or negative externalities are present.
• D)Markets produce too little of a good when positive or negative externalities are present.

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Definitions:

Low-Dividend Policy

A financial strategy where a company decides to distribute a relatively small portion of its earnings to shareholders in the form of dividends.

Retention Ratio

The proportion of net income that is retained in the business rather than paid out to shareholders as dividends.

Compromise Policy

A method or strategy of resolving a conflict or dispute whereby all parties involved make concessions.

Financial Distress

A situation where a company cannot meet or has difficulty paying off its financial obligations to its creditors.