Asked by Widelyne Loiseau on May 05, 2024
Verified
Externalities:
A) are not reflected in market prices, so they can be a source of economic inefficiency.
B) do become reflected in market prices, so they can be a source of economic inefficiency.
C) are not reflected in market prices, so they do not adversely affect economic efficiency.
D) do become reflected in market prices, so they do not adversely affect economic efficiency.
E) may or may not become reflected in market prices, but do not have an impact on economic efficiency in either event.
Economic Inefficiency
A situation where resources are not allocated in the most effective way, resulting in waste or loss of potential benefit to society.
Externalities
Economic side effects or consequences that affect uninvolved third parties; can be either positive or negative.
Market Prices
The current price at which a good or service can be bought or sold in a market.
- Discern the impact that external factors have on market functionality and the levels of production and consumption that are most beneficial to society.
Verified Answer
JR
Jessica RiveraMay 09, 2024
Final Answer :
A
Explanation :
Externalities refer to costs or benefits that are not fully reflected in the market price. Because they are not factored into market prices, they can create economic inefficiencies. For example, pollution from a factory may have negative effects on the environment and public health, but these costs are not reflected in the price of the goods produced by the factory. As a result, the market may over-produce these goods, leading to an inefficient allocation of resources.
Learning Objectives
- Discern the impact that external factors have on market functionality and the levels of production and consumption that are most beneficial to society.
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