Suppose that a perfectly competitive industry has an external cost (e.g. ,noise pollution).The market outcome will ______ because the equilibrium price is ______.
A) not maximize total surplus;greater than the true cost
B) maximize total surplus;correct
C) not maximize total surplus;too high
D) maximize total surplus;too low
E) not maximize total surplus;less than the true cost

Question

Quizplus · Accepted Answer

In a perfectly competitive market with an external cost, the market outcome does not maximize total surplus because the equilibrium price is less than the true social cost, leading to overproduction and inefficiency.

Suppose That a Perfectly Competitive Industry Has an External Cost