Markets which have external costs will produce ________ output than the socially efficient level whereas markets which have external benefits will produce ________ output than the socially efficient level.
A) less; less
B) more; more
C) more; less
D) less; more

Question

Quizplus · Accepted Answer

Markets with external costs (negative externalities, such as pollution) tend to overproduce compared to the socially efficient level because not all costs are borne by the producer. Conversely, markets with external benefits (positive externalities, like education) tend to underproduce since not all benefits are captured by the producer, leading to less production than is socially optimal.

Markets Which Have External Costs Will Produce ________ Output Than