What is the difference between a market failure and an externality?
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In everyday terms, a market failure happens when the free market doesn't allocate resources efficiently, leading to a less-than-ideal outcome. On the other hand, an externality occurs when the actions of one party affect others who didn't choose to be involved, often causing unintended consequences.Read more
In everyday terms, a market failure happens when the free market doesn’t allocate resources efficiently, leading to a less-than-ideal outcome. On the other hand, an externality occurs when the actions of one party affect others who didn’t choose to be involved, often causing unintended consequences. In essence, market failures reflect systemic issues in how markets operate, while externalities highlight the unintended side effects of individual actions.
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