ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Costs are not charged to the producer
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Benefits of the producing facotry are wanted by the community
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Stores stock more than they can sell
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People might refuse to purchase the product
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Detailed explanation-1: -In the case of pollution-the traditional example of a negative externality-a polluter makes decisions based only on the direct cost of and profit opportunity from production and does not consider the indirect costs to those harmed by the pollution.
Detailed explanation-2: -Therefore, pollution is considered an external cost because its costs and expenses to the environment and surroundings are not reflected in the pricing of the commodity, which has caused the pollution.
Detailed explanation-3: -Pollution is a negative externality. Economists illustrate the social costs of production with a demand and supply diagram. The social costs include the private costs of production incurred by the company and the external costs of pollution that are passed on to society.
Detailed explanation-4: -In markets, industry, business, etc, the goal is to be as efficient as possible because that means you’re saving money, and that means you’re maximizing profits. Thus, if we are putting out a lot of pollution, we’re actually operating very inefficiently, and that means we’re wasting massive amounts of money.