The market equilibrium is not efficient when the consumption of a good creates external costs, which cause social costs to be:
A) less than the private cost.
B) greater than the private cost.
C) less than the total cost.
D) greater than the total cost.

Question

Quizplus · Accepted Answer

When consumption of a good creates external costs, the social cost of production exceeds the private cost of production. As a result, the market equilibrium is not efficient and leads to overproduction of the good. This can lead to negative externalities, such as pollution or congestion, and is why government intervention in the form of taxes or regulations may be necessary to internalize these external costs and achieve a more efficient outcome.

The Market Equilibrium Is Not Efficient When the Consumption of a Good