If the production of a good causes an external cost, then the efficient quantity is
A) more than the quantity at which the marginal benefit equals the marginal cost.
B) the quantity at which the marginal private benefit is greater than the marginal social benefit.
C) equal to the quantity at which the marginal benefit equals the marginal cost.
D) less than the quantity at which the marginal benefit equals the marginal cost.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

If the production of a good causes an external cost, then the marginal social cost is greater than the marginal private cost. Therefore, the quantity at which the marginal benefit equals the marginal cost is higher than the efficient quantity. The efficient quantity is lower than the quantity at which the marginal benefit equals the marginal cost, so it is less than the efficient quantity. Therefore, the correct answer is D.

If the Production of a Good Causes an External Cost