When firms do not have to pay the true social costs for resources
A) they have an incentive to reduce pollution voluntarily with their excess profits.
B) the net social benefits are increased.
C) they will use too little of them, from society's perspective.
D) no external diseconomies are present.
E) the public is induced to buy more of that output than it would otherwise.

Question

Quizplus · Accepted Answer

When firms do not pay the true social costs, the price of their output is lower than it should be, leading the public to buy more of it than they would if the true costs were reflected in the price.

When Firms Do Not Have to Pay the True Social