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External Costs and Market Failure

Question

Explain why external costs cause market failure.

Category:

Market Structures and Competition

Frequently asked question

Preview Answer

I. 🍃Introduction
A. Definition of external costs
B. Importance of considering external costs in economic decision-making

II. Negative effects of external costs
A. Harmful effects on third parties
B. Overconsumption and overproduction
C. Social costs exceeding social benefits

III. Examples of external costs
A. Driving
B. Pollution and environmental damage
C. Burning fields and mining

IV. Misallocation of resources
A. Inefficient use of resources
B. Negative impact on economic growth and development

V. Solutions to address external costs
A. Government intervention and regulation
B. Market-based solutions
C. Corporate social responsibility

VI. 👉Conclusion
A. Recap of the importance of considering external costs
B. Call to action for individuals and governments to address external costs.

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