Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?
A) The efficient price would be higher than $84.
B) The efficient price would be lower than $84.
C) The efficient price would also be $84.
D) The efficient output would be greater than 320 units.

Question

Quizplus · Accepted Answer

When external costs are present, the market price does not reflect the true cost to society. The efficient price would be higher to account for these external costs, leading to a reduction in output to reach the efficient equilibrium.

Suppose External Costs Are Present in a Market Which Results