Question

An externality

a. strengthens the role of the “invisible hand” in the marketplace.
b. results in an equilibrium that does not maximize the total benefits to society.
c. causes demand to exceed supply.
d. affects buyers but not sellers.

Answer 1

An externality results in an equilibrium that does not maximize the total benefits to society.
On most cases, an externality is created due to the inefficiency in the allocation of Goods and service. This will cause either too much unneeded goods exist in the market or not enough goods to actually fulfill the consumers' needs.