Relating to the Economics in Practice on page 330: By not factoring in the external costs on society resulting from an environmental disaster caused by a specific firm, the firm will most likely ________ its product, and at equilibrium, the marginal social costs of production will be ________ the price.
A) overproduce; less than
B) overproduce; greater than
C) underproduce; less than
D) underproduce; greater than

Question

Quizplus · Accepted Answer

When a firm does not account for external costs, it tends to overproduce because it does not bear the full cost of production. Consequently, the marginal social costs, which include external costs, are greater than the price.

Relating to the Economics in Practice on Page 330: by Not