(Answered) which statements explains why free markets fail to produce public goods?which statements explains…

➤ How do externalities relate to public goods and market failure?
Externalities occur when a transaction affects third parties who are not part of the market exchange. Positive externalities, like herd immunity, often accompany public goods and create benefits that producers cannot capture. This gap causes private underinvestment. The market fails to reflect full social benefits, so socially desirable public goods remain undersupplied without intervention.