In a market where firms are able to reduce their private costs by shifting costs onto others, which of the following will NOT happen?
A) Negative externalities will be observed.
B) Output of the good being produced will be too low.
C) Prices will be too low relative to the social optimum.
D) Inefficiencies will occur.

Question

Quizplus · Accepted Answer

In a market where firms are able to reduce their private costs by shifting costs onto others, negative externalities will be observed, prices will be too low relative to the social optimum, and inefficiencies will occur. However, the output of the good being produced will not necessarily be too low. In fact, the opposite could happen, where the production of the good exceeds the socially optimal level due to the lower private costs for the firms.

In a Market Where Firms Are Able to Reduce Their