For a good whose production creates an external cost, the efficient quantity of output is
A) where the market demand curve and the market supply curve intersect.
B) zero.
C) where the marginal social cost curve and marginal benefit curve intersect.
D) the amount of production so that the marginal social benefit exceeds the marginal social cost by as much as possible.
E) as low as possible.

Question

Quizplus · Accepted Answer

The efficient quantity of output where there is an external cost is where the marginal social cost (the cost to society) equals the marginal social benefit (the benefit to society), which is where the marginal social cost and marginal benefit curve intersect. This quantity takes into account the external cost and ensures that resources are allocated efficiently. Choices A, B, D, and E either do not take into account the external cost or do not allocate resources efficiently.

For a Good Whose Production Creates an External Cost, the Efficient