Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce
A) too much of both goods.
B) too little of both goods.
C) too much of the good that generates external benefits and too little of the good that generates external costs.
D) too little of the good that generates external benefits and too much of the good that generates external costs.

Question

Quizplus · Accepted Answer

In a competitive market, goods with external benefits are underproduced because the market fails to account for the positive externalities, while goods with external costs are overproduced because the market does not account for the negative externalities.

Consider Two Goods--One That Generates External Benefits and Another That