If a market generates a side effect or externlity then free market solutions ?
Correct answer: C. are inefficient
- A. maximize producer surplus
- B. are efficient
- C. are inefficient
- D. are equitable
Explanation
An externality means that some costs or benefits fall on third parties and are not reflected in the market price. Because private decisions then differ from the socially efficient outcome, the unregulated market is inefficient.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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