Suppose external costs are present in a market which results in the actual market price of $24 and market output of 325 units. How does this outcome compare to the efficient, ideal equilibrium?
A) The efficient outcome would be greater than 325 units.
B) The efficient outcome would be less than 325 units.
C) The efficient outcome would also be 325 units.
D) The efficient price would be less than $24.

Question

Quizplus · Accepted Answer

When external costs are present, the market tends to overproduce compared to the efficient outcome. Therefore, the efficient quantity would be less than 325 units.

Suppose External Costs Are Present in a Market Which Results