Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality
Would involve
A) a much greater marginal beneﬁt than marginal cost.
B) a much greater marginal cost than marginal beneﬁt.
C) having shortages in the market.
D) having surpluses in the market.

Question

Quizplus · Accepted Answer

Completely eliminating externalities would result in a much greater marginal cost than marginal benefit, as the cost of completely eliminating the externality would likely outweigh the benefits. Therefore, a socially optimal quantity for a product with externalities would not be zero, but rather some level that balances the costs and benefits to society.

Oftentimes, the Socially Optimal Quantity for a Product That Imposes