An external diseconomy results in a socially nonoptimal use of a resource because
A) the private costs exceed the social costs.
B) it prohibits economic growth.
C) the resource user does not bear the full cost of his or her actions.
D) firms will not maximize their profits.
E) too little of the resource will be used.

Question

Quizplus · Accepted Answer

An external diseconomy creates a situation where the cost of using a resource is not borne fully by the user. For example, pollution from a factory may cause health problems for nearby residents, but the factory does not directly bear the full cost of these negative effects. This leads to a socially nonoptimal use of the resource, as the cost to society as a whole is higher than the cost to the individual user.

An External Diseconomy Results in a Socially Nonoptimal Use of a Resource