Answer to Question #181150 in Microeconomics for Kelvin

Question

Are externalities resources that can be used to solve the scarcity problem?

Answer 1

An externality is a cost or benefit of an economic activity experienced by an unrelated third party. The external cost or benefit is not reflected in the final cost or benefit of a good or service. Therefore, economists generally view externalities as a serious problem that makes markets inefficient, leading to market failures thus cannot solve the scarcity problem.