The deadweight loss associated with producing a product that has an external cost occurs because
A) too little output is produced.
B) too much output is produced.
C) the marginal social cost does not equal zero.
D) not enough resources are allocated to producing the good.
E) the price that firms charge for the good is too high.

Question

Quizplus · Accepted Answer

The deadweight loss associated with producing a product that has an external cost occurs because too much output is produced. This is because the price charged by the firms does not reflect the true social cost of production, leading to overproduction and hence a deadweight loss.

The Deadweight Loss Associated with Producing a Product That Has