The deadweight loss associated with producing a product that has an external cost occurs because
A) too much output is produced.
B) too little output is produced.
C) the price firms charge for the good is too high.
D) not enough resources are allocated to producing the good.
E) the marginal social cost does not equal zero.

Question

Quizplus · Accepted Answer

The deadweight loss associated with producing a product that has an external cost occurs because too much output is produced. This happens because firms do not take into account the external cost (such as pollution or other externalities) when making their production decisions. As a result, they may produce too much of the product, which creates a deadweight loss.

The Deadweight Loss Associated with Producing a Product That Has