Private markets fail to reach a socially optimal equilibrium when external benefits are present because the:
A) social value exceeds the private value at the private market solution.
B) private cost exceeds the social benefit at the private market solution.
C) private benefit equals the social benefit at the private market solution.
D) None of the answers is correct. Private markets DO achieve a socially optimal equilibrium when external benefits are present.

Question

Quizplus · Accepted Answer

When external benefits are present, the social value (which includes both private and external benefits) exceeds the private value, leading to underproduction in private markets compared to the socially optimal level.

Private Markets Fail to Reach a Socially Optimal Equilibrium When