alleryStart learning →Economists commonly refer to externalities as an example of:
APerfect competition
BComparative advantage
CMarket failure
DMarket success
Answer & Solution
Correct answer: C. Market failure
1. Markets miss something when spillovers exist.
2. Externalities represent a case where markets no longer consider all social costs.
3. Markets consider only some of those costs.
4. So economists commonly refer to externalities as an example of market failure.
_Source: OpenStax Principles of Microeconomics for AP Courses 2e (CC BY 4.0), Ch 12 'Environmental Protection and Negative Externalities'_
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