Asked by Kerolos Joseph on Jul 29, 2024
Verified
When externalities are present,market prices do not reflect all the social costs or benefits of the activity.
Externalities
Economic side effects or consequences that affect uninvolved third parties; can be either positive or negative.
Social Costs
The total cost of an action or decision, including both private costs and any externalities borne by society at large.
- Become familiar with the critical nature of public goods, externalities, and the differences between what is required by the private and public sectors.
Verified Answer
ZK
Zybrea KnightAug 03, 2024
Final Answer :
True
Explanation :
Externalities refer to the costs or benefits of an economic activity that affect a third party who is not directly involved in the activity. Market prices only reflect the private costs and benefits of the activity, and therefore, do not account for the external costs or benefits. This leads to inefficiencies in the market and the need for the government or other institutions to intervene to correct the market failure.
Learning Objectives
- Become familiar with the critical nature of public goods, externalities, and the differences between what is required by the private and public sectors.