Suppose external benefits are present in a market which results in the actual market price of $14 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?
A) The efficient outcome would be greater than 150 units.
B) The efficient outcome would be less than 150 units.
C) The efficient outcome would also be 150 units.
D) The efficient price would be less than $14.

Question

Quizplus · Accepted Answer

When external benefits are present, the market tends to underproduce because the full social benefits are not reflected in the market demand. Therefore, the efficient outcome would involve a greater quantity than the market outcome of 150 units.

Suppose External Benefits Are Present in a Market Which Results