Answer:
True. In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole. This is because externalities, whether positive or negative, affect parties outside of the market transaction. When there are negative externalities, such as pollution or traffic congestion, the costs to society as a whole exceed the costs borne by the buyer and seller in the market transaction. When there are positive externalities, such as education or vaccination, the benefits to society as a whole exceed the benefits enjoyed by the buyer and seller in the market transaction. In both cases, the market fails to capture the full social costs or benefits of the transaction, resulting in an inefficient outcome. Therefore, government intervention, such as taxes or subsidies, may be necessary to correct for the externality and bring about a more socially optimal outcome.
Step-by-step explanation: