Question

Which of these statements is true in the case of externalities? i. in the case of externalities, prices do not reflect the true cost or benefit of the product. ii. in the case of externalities, prices sometimes send the wrong signals about a market. iii. externalities discourage new producers from entering the industry since the price always remains about the efficient price?

Answer 1

Which of these statements is true in the case of externalities? In the case of externalities, prices do not reflect the true cost or benefit of the product. AND in the case of externalities, prices sometimes send the wrong signals about a market.

An externality is the effect of industrial or commercial activity that affects another party, business/organization. This isn't a straight reflection on the cost of goods sold (COGS) rather an attack on crops etc.