When there are no externalities,
A) the market equilibrium occurs at the point where the marginal social benefit is equal to the marginal social cost.
B) society is not as well off as it could be.
C) the marginal social cost is different from the marginal private cost.
D) other people must bear part of the cost.
E) there is no market equilibrium.

Question

Quizplus · Accepted Answer

When there are no externalities, the market equilibrium occurs at the point where the marginal social benefit (MSB) is equal to the marginal social cost (MSC). This is because both producers and consumers consider only their private benefits and costs when making decisions in the market, and the market forces of supply and demand serve to equalize the private costs and benefits. However, in the absence of externalities, the private costs and benefits equal the social costs and benefits. Therefore, the efficient level of output is achieved at the market equilibrium where MSB=MSC.

When There Are No Externalities