Question

Private markets fail to account for externalities because
a. the government cannot easily estimate the optimal quantity of pollution.
b. externalities don't occur in private markets.
c. decisionmakers in the market fail to include the costs of their behavior to third parties.
d. sellers include costs associated with externalities in the price of their product.

Answer 1

Answer: decision makers in the market fail to include the cost of their behavior to third parties

Explanation:

An externality simply means the effect of a particular economic decision that's taken by an individual or a firm on a third party or someone who isn't involved in the decision. This externality can either be positive or negative.

Private markets fail to account for externalities because decision makers in the market fail to include the cost of their behavior to third parties.

Externality can bring about market failure which has to do with not allocating resources efficiently in the market. This is one reason why government intervene in the market.