If there are external benefits associated with the consumption of a good or service,
A)the market demand curve will overestimate the true demand curve.
B)the market demand curve will underestimate the true demand curve.
C)consumers are paying for all these benefits.
D)the market demand curve will be the vertical summation of the individual demand curves.

Question

Quizplus · Accepted Answer

When there are external benefits associated with the consumption of a good or service, the market demand curve will underestimate the true demand curve because it does not account for the additional benefits to society or third parties that are not reflected in the market price.

If There Are External Benefits Associated with the Consumption of a Good