When There Is Market Failure Due to a Negative Externality

question 38

Multiple Choice

When there is market failure due to a negative externality,

• A) innocent people will suffer since it cannot be corrected.
• B) setting price equal to marginal social cost will solve it.
• C) the free market produces too little output.
• D) externalities have been taken into account.
• E) the best solution eliminates the externality entirely.

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