Why do U.S. economists commonly refer to externalities as an example of market failure?
A. firms that are required to pay social costs of externalities produce more
B. externalities present a case where markets consider all social costs
C. externalities present a case where markets only consider some social costs
D. firms avoid having to pay social costs of externalities by lowering prices
C
Which of the following is used to describe the full spectrum of animal and plant genetic material?
A. ecodiversity
B. biodiversity
C. envirodiversity
D. duodiversity
B
Which of the following is used to describe the full spectrum of animal and plant genetic material?
A. ecodiversity
B. biodiversity
C. envirodiversity
D. duodiversity
B
Which of the following is an example of economic output that can injure the environment?
A. gold mine discharging arsenic into a natural lake it's using for a tailings pond
B. paper mill discharging raw chemical waste into a river
C. excessive clear cutting of wood resources by logging companies
D. radio-active waste leaking into a river, and all of the above
D

When products and services are distributed inefficiently in the free market, this is referred to as market failure in economics. A market that functions optimally has forces of supply and demand that are counterbalanced, with a change in one side of the equation causing a change in price that preserves the market's equilibrium. However, something disrupts this balance in a market failure.

The incentives for rational behaviour to occur individually do not result in reasonable outcomes for the collective when markets fail. In other words, each person chooses what is best for themselves, but those choices end up being bad for the group as a whole.

In the event of a market failure, the entire group pays too much money or receives too much money.

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