Private Markets Fail to Account for Externalities Because

question 155

Multiple Choice

Private markets fail to account for externalities because

• A)externalities don't occur in private markets.
• B)sellers include costs associated with externalities in the price of their product.
• C)decisionmakers in the market fail to include the costs of their behavior to third parties.
• D)the government cannot easily estimate the optimal quantity of pollution.

---

Definitions:

Negative Externality

A cost that affects someone who did not choose to incur that cost or participate in the action causing it, often seen in pollution where the public pays the price for private industry actions.

MSC (Marginal Social Cost)

The complete expense incurred by society for the production of one more unit of a good or service, encompassing both individual costs and any external effects.

Marginal Social Cost

The total cost to society of producing an additional unit of a good or service, including both private costs and externalities.

Society

A large group of individuals who live in the same area, share a common culture, norms, and values, and are organized in a cooperative manner.