When there is an externality in a market,Group of answer choicesthe externality will move the market to an economically efficient equilibrium.the externality will cause the market price to be less than or greater than the equilibrium price.the government should use price controls to enable the market to reach equilibrium.government intervention may increase economic efficiency.
Question
When there is an externality in a market,Group of answer choicesthe externality will move the market to an economically efficient equilibrium.the externality will cause the market price to be less than or greater than the equilibrium price.the government should use price controls to enable the market to reach equilibrium.government intervention may increase economic efficiency.
Solution 1
An externality is a cost or benefit that affects a party who did not choose to incur that cost or benefit. It can lead to market inefficiency when the market outcome does not maximize societal welfare.
When there is an externality in a market, it can cause the market price to be less than or greater than the equilibrium price. This is because the presence of externalities can cause overproduction or underproduction, which in turn affects the market price.
However, government intervention, such as taxes, subsidies, or regulations, can potentially correct the market failure caused by the externality and increase economic efficiency. This is because the government can use these tools to make the private costs or benefits align more closely with the social costs or benefits.
Therefore, the correct answer is: government intervention may increase economic efficiency.
Solution 2
An externality is a cost or benefit that affects a party who did not choose to incur that cost or benefit. It can lead to market inefficiency when the market outcome does not maximize societal welfare.
When there is an externality in a market, it can cause the market price to be less than or greater than the equilibrium price. This is because the presence of externalities can cause overproduction or underproduction, which in turn affects the market price.
However, government intervention, such as taxes, subsidies, or regulations, can potentially correct the market failure caused by the externality and increase economic efficiency. This is because the government can use these tools to make the private costs or benefits align more closely with the social costs or benefits.
Therefore, the correct answer is: government intervention may increase economic efficiency.
Similar Questions
When externalities exist _____.Multiple choice question.outside intervention may be able to improve the market outcome increasing efficiency and economic surplusefficiency and economic surplus are sometimes affected but not alwaysoutside intervention increases efficiency but not economic surplusoutside intervention usually decreases efficiency and economic surplus
What can you say about the equilibrium quantity of production and the equilibrium price for a market with external benefits?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aThe equilibrium market quantity is too high, and the equilibrium market price is too low, relative to the efficient level of production.bThe equilibrium market quantity is too low, and the equilibrium market price is too high, relative to the efficient level of production.cThe equilibrium market quantity is too low, and the equilibrium market price is too low, relative to the efficient level of production.dThe equilibrium market quantity is too high, and the equilibrium market price is too high, relative to the efficient level of production.
Externality: What It Means in Economics
When a externality exists, the socially optimal level of output will be less than that resulting from a market.
Why do externalities mainly lead to market failure? Select the best possible option.The price equilibrium for a certain good or service does not accurately reflect the real cost or real benefit of that good or service.The benefactor of the externalities has no control over and does not choose to incur either the cost or the benefit.Individual incentives that drive market decisions may increase social costs.All of the above.
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