Suppose external costs are present in a market which results in the actual market price of $50 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?

Question

Quizplus · Accepted Answer

The presence of external costs in the market implies that the actual market price and output are higher than the ideal equilibrium. Therefore, to achieve the efficient outcome in which external costs are internalized, the market output should be lower than 800 units. Thus, B is the correct answer.

Suppose External Costs Are Present in a Market Which Results