-The figure above shows the market for a good with an external benefit.If the market is competitive and the government takes no action,the equilibrium quantity of ________ units is inefficient because ________.
A) 8; marginal benefit exceeds marginal cost
B) 8; marginal cost exceeds marginal benefit
C) 10; marginal cost exceeds marginal benefit
D) 10; marginal social benefit exceeds marginal benefit
E) 10; marginal external benefit exceeds marginal social benefit

Question

-The figure above shows the market for a good with an external benefit.If the market is competitive and the government takes no action,the equilibrium quantity of ________ units is inefficient because ________.
A) 8; marginal benefit exceeds marginal cost 
B) 8; marginal cost exceeds marginal benefit 
C) 10; marginal cost exceeds marginal benefit 
D) 10; marginal social benefit exceeds marginal benefit 
E) 10; marginal external benefit exceeds marginal social benefit

Quizplus · Accepted Answer

In a competitive market without government intervention, the equilibrium quantity is where the private marginal cost equals the private marginal benefit, ignoring external benefits. This results in an inefficient outcome because the marginal social benefit, which includes both private and external benefits, exceeds the marginal cost at this equilibrium, suggesting that increasing production would yield net benefits to society.

-The Figure Above Shows the Market for a Good with an External