alleryStart learning →Externalities count as market failure because markets consider social costs that are:
ATwice their true size
BOnly some of them
CAll of them fully
DNone of them ever
Answer & Solution
Correct answer: B. Only some of them
1. Market failure means the market outcome misses something real.
2. Externalities affect third parties outside the exchange.
3. Externalities represent a case where markets no longer consider all social costs.
4. Markets consider only some of them.
5. That is why 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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