Asked by Ashley Dias-Stiefel on May 17, 2024
Verified
Statement I.Pollution is an example of market failure.
Statement II.Externalities can be costs or benefits.
A) Statement I is true and statement II is false.
B) Statement II is true and statement I is false.
C) Both statements are true.
D) Both statements are false.
Externalities
Consequences of an economic activity experienced by unrelated third parties; can be positive or negative.
Market Failure
A situation where the allocation of goods and services by a free market is not efficient, often justifying government intervention.
Pollution
The contamination of the natural environment by harmful substances, leading to adverse health effects and environmental damage.
- Master the understanding of the principles underpinning market failures, notably externalities and inefficiencies.
Verified Answer
AO
Ahemd OsamaMay 20, 2024
Final Answer :
C
Explanation :
Statement I is true because pollution is a classic example of a market failure where the price of goods and services does not reflect the full costs of production or consumption, resulting in negative externalities such as pollution. Statement II is also true because externalities can be either positive or negative, in the form of costs or benefits, that are not accounted for in the market price.
Learning Objectives
- Master the understanding of the principles underpinning market failures, notably externalities and inefficiencies.