In a market with an externality under which of the following

In a market with an externality, under which of the following conditions might the market outcome be efficient? I. A monopolist in a market with a positive production externality Becoming a small country free trade exporter with a positive domestic Il. consumption externality IIl. Becoming a small country free trade importer with a negative domestic production externality I only Il and III only IlI only 1, II, and III

Solution

In a market with an externality, under conditions 2^nd and 3^rd the market outcome can be efficient. So the correct option is C. This is because the economic efficiency occurs when marginal benefit from an economic activity is equal to its marginal cost.