Consider a market in which there is an external benefit. The inefficient market equilibrium is such that
A) marginal social cost is greater than marginal social benefit.
B) price is too high.
C) too much output is produced.
D) too little output is produced.

Question

Quizplus · Accepted Answer

In the presence of an external benefit, the market tends to produce less than the socially optimal quantity because it does not account for the external benefits in its production decisions. This leads to a situation where the marginal social benefit of additional units of output is greater than the marginal social cost, indicating that too little output is produced for efficiency.

Consider a Market in Which There Is an External Benefit