For a product with external benefits that is produced in a competitive, unregulated market, how can the resulting market output be described?
A) Underproduction and overproduction are both possible depending on whether the external benefit is to consumption or production.
B) There is overproduction compared to the efficient level.
C) Production equals the efficient level.
D) There is underproduction compared to the efficient level.
E) None of the above is correct.

Question

Quizplus · Accepted Answer

When a product has external benefits (positive externalities), the social value of the product is higher than the private value. In a competitive, unregulated market, producers do not consider these external benefits when making production decisions, leading to less production than the socially optimal level. This results in underproduction compared to the efficient level.

For a Product with External Benefits That Is Produced in a Competitive