Question

An externality _______.a. causes markets to allocate resources efficiently. b. affects producers but not consumers. c. is a type of market failure. d. strengthens the role of the "invisible hand" in the marketplace.

Answer 1

c. is a type of market failure

Step-by-step explanation:

An externality can either be positive or negative. Postive externality is when the benefits of economic activities to third parties exceeds the costs.

Negative externality is when the cost of economic activities to third parties exceeds the benefits.

Externality leads to inefficient distribution of resocurces and weakens the invisible hand. It affects both consumers and producers.

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