Question

External costs occur because Group of answer choices Private costs do not reflect the full costs to society All costs are absorbed by the firm Firms make a choice other than the most cost-efficient production method Government failure increases costs for the firm

Answer 1

Private costs do not reflect the full costs to society

Step-by-step explanation:

External costs are costs incurred by third parties not involved in production or consumption activities

external cost can either be negative or positive

A good has negative externality if the costs to third parties not involved in production is greater than the benefits. an example of an activity that generates negative externality is pollution. Pollution can be generated at little or no cost, so they are usually overproduced.

A good has positive externality if the benefits to third parties not involved in production is greater than the cost. an example of an activity that generates positive externality is research and development. Due to the high cost of R & D, they are usually under-produced.