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

Question

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

Quizplus · Accepted Answer

When production of a good results in an external cost, the marginal social cost (MSC) is greater than the marginal social benefit (MSB), leading to overproduction and inefficiency in the market.

When Production of a Good Results in an External Cost