An external benefit implies that private markets will provide ________ than the socially optimal quantity, and an external cost implies that private markets will provide ________ than the socially optimal quantity.
A)more; more
B)less; less
C)more; less
D)less; more

Question

Quizplus · Accepted Answer

External benefits and external costs are not considered by firms and consumers. Thus, if a good involves an external cost, then private markets will produce too much of the good, and if a good involves an external benefit, then private markets will provide too little of the good.

An External Benefit Implies That Private Markets Will Provide ________