ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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for consumers only.
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for people other than the producer or consumer.
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for producers and consumers.
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for producers only.
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Detailed explanation-1: -Externalities occur in an economy when the production or consumption of a specific good or service impacts a third party that is not directly related to the production or consumption of that good or service. Almost all externalities are considered to be technical externalities.
Detailed explanation-2: -A production externality is generated when the production activities of one firm adversely or positively affects the production activities of another firm. Similarly, a consumption externality is generated when my consumption of a good affects your consumption of the same.
Detailed explanation-3: -CONSUMPTION, production, and investment decisions of individuals, households, and firms often affect people not directly involved in the transactions. Sometimes these indirect effects are tiny. But when they are large they can become problematic-what economists call externalities.
Detailed explanation-4: -externality noun (EFFECT) a positive or negative effect for someone else as a result of something that you do: Economists sometimes underestimate the actual cost of doing business because they don’t include externalities like environmental damage from pollution.
Detailed explanation-5: -Externalities pose fundamental economic policy problems when individuals, households, and firms do not internalize the indirect costs of or the benefits from their economic transactions. The resulting wedges between social and private costs or returns lead to inefficient market outcomes.