When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because A) MSC MSB

Question

When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because
A) MSC < MSB
B) MSC = MC
C) MSC = MSB
D) MSC > MSB

Quizplus · Accepted Answer

When production of a good results in an external cost, the marginal social cost (MSC) of producing the good is higher than the marginal social benefit (MSB), indicating that the cost to society of producing one more unit of the good is greater than the benefit derived from that unit. This discrepancy leads to overproduction and inefficiency in the market.

When Production of a Good Results in an External Cost