If a good has an external cost, the
A) marginal private cost reflects the external cost.
B) competitive market outcome is inefficient.
C) competitive market outcome is efficient.
D) marginal private benefit is equal to the marginal social cost.

Question

Quizplus · Accepted Answer

When a good has an external cost, such as pollution from a factory, this cost is not reflected in the market price of the good. As a result, more of the good is produced and consumed than would be the case if the external cost were taken into account. This leads to an inefficient market outcome because the true cost to society is higher than the private cost borne by the producer or consumer.

If a Good Has an External Cost, the