If a good has an external cost, the efficient price is greater than the market price.

Question

Quizplus · Accepted Answer

If a good has an external cost, it means that the market price does not reflect the full cost of producing or consuming the good, as some costs are imposed on parties outside of the market transaction. As a result, the market price is lower than the efficient price, which takes into account all costs (including external costs) and benefits. Therefore, to achieve efficiency, the price would need to be raised to reflect the external cost, resulting in an efficient price that is greater than the market price.

If a Good Has an External Cost, the Efficient Price