Asked by Janice Walker on Apr 27, 2024
Verified
When an externality is present, the market equilibrium is
A) efficient, and the equilibrium maximizes the total benefit to society as a whole.
B) efficient, but the equilibrium does not maximize the total benefit to society as a whole.
C) inefficient, but the equilibrium maximizes the total benefit to society as a whole.
D) inefficient, and the equilibrium does not maximize the total benefit to society as a whole.
Market Equilibrium
A condition where the quantity of a good or service supplied equals the quantity demanded, leading to no upward or downward pressure on price.
Inefficient
A situation where resources are not used in the most effective way, leading to potential waste or lost opportunities.
Externalities
Costs or benefits of a market activity borne by a third party; externalities can be either positive or negative.
- Comprehend the idea of external factors and their consequences on market productivity.
Verified Answer
JK
Jaide KassamApr 30, 2024
Final Answer :
D
Explanation :
When an externality is present, the market fails to allocate resources efficiently, and as a result, the equilibrium does not maximize the total benefit to society. This is because externalities cause a difference between private and social costs or benefits, leading to overproduction or underproduction from a societal perspective.
Learning Objectives
- Comprehend the idea of external factors and their consequences on market productivity.