Suppose external costs are present in a market which results in the actual market price of $70 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?
A) The efficient price would be higher than $70.
B) The efficient price would be lower than $70.
C) The efficient price would also be $70.
D) The efficient output would be greater than 150 units.

Question

Quizplus · Accepted Answer

When external costs are present, the market price does not reflect the true cost to society, leading to overproduction. The efficient price would be higher to account for these external costs.

Suppose External Costs Are Present in a Market Which Results