When production of a good results in an external cost,the unregulated competitive market equilibrium is inefficient because ________. A) MSC = MC B) MSC = MB C) MSC MB D) MSC

Question

When production of a good results in an external cost,the unregulated competitive market equilibrium is inefficient because ________.
A) MSC = MC
B) MSC = MB
C) MSC > MB
D) MSC < MB
E) MSC is undefined

Quizplus · Accepted Answer

When production of a good results in an external cost, the unregulated competitive market equilibrium is inefficient because MSC > MB. This is because the market only takes into account the private costs and benefits of production, and not the external costs that are imposed on society. As a result, the market produces too much of the good, and the resulting external costs lead to a loss of social welfare.

When Production of a Good Results in an External Cost,the