The presence of external benefits associated with production implies that ________.
A) private output exceeds the socially optimal output
B) private output is less than the socially optimal output
C) private output corresponds to the socially optimal output
D) any of the above, depending on the relative magnitude of social and private benefits

Question

Quizplus · Accepted Answer

The presence of external benefits implies that there are additional benefits to society that are not captured by the market price, which means that private output (output based solely on market demand) is less than the socially optimal output. To achieve the socially optimal output, some form of government intervention or policy may be necessary to internalize these external benefits.

The Presence of External Benefits Associated with Production Implies That