Question

Any economic transaction only affects the parties involved i.e. buyers and sellers. When this assumption is wrong, the market displays .

• A. irrationality
• B. information gap
• C. market power
• D. externalities

Answer 1

The correct option is D externalities

When a transaction has an indirect impact on someone other than the producers and consumers of the good, the market is said to exhibit externalities. The environmental effects like pollution of many manufacturing industries is an example of externalities.