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7 September, 05:47

When externalities exist, buyers and sellers

a. neglect the external effects of their actions, but the market equilibrium is still efficient.

b. do not neglect the external effects of their actions, and the market equilibrium is efficient.

c. neglect the external effects of their actions, and the market equilibrium is not efficient.

d. do not neglect the external effects of their actions, and the market equilibrium is not efficient.

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Answers (1)
  1. 7 September, 08:23
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    The correct answer is option c.

    Explanation:

    An externality refers to the situation when a third person who is not directly involved in the production or consumption of a good or service has to bear the cost.

    Externalities can be both positive as well as negative. Positive externalities are called external benefits and negative externalities are called external costs.

    These externalities lead to inefficient allocation and cause market failure.

    The buyers and sellers generally neglect the externalities that they create, and the market equilibrium is not efficient. In this situation, the government has to intervene in the market to correct externalities and efficiently allocate resources.
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Home » Business » When externalities exist, buyers and sellers a. neglect the external effects of their actions, but the market equilibrium is still efficient. b. do not neglect the external effects of their actions, and the market equilibrium is efficient. c.
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