When production of a good generates external costs, the
A) demand curve for the good will overstate the true social benefits from consumption of the good.
B) demand curve for the good will understate the true social benefits from consumption of the good.
C) supply curve for the good will overstate the true social cost of producing the good.
D) supply curve for the good will understate the true social cost of producing the good.

Question

Quizplus · Accepted Answer

When production generates external costs, the supply curve does not account for these additional costs, thus understating the true social cost of production.

When Production of a Good Generates External Costs, the