If the consumption of good generates an external benefit, then the market equilibrium quantity:
A)will be socially optimal.
B)will be less than the socially optimal quantity.
C)will be greater than the socially optimal quantity.
D)could be either less than or greater than the socially optimal quantity.

Question

Quizplus · Accepted Answer

When consumption of a good generates an external benefit, the market equilibrium quantity will be less than the socially optimal quantity. This is because consumers do not take into account the full benefit to society when making their consumption decisions, resulting in an underallocation of resources to the good. Therefore, government intervention may be necessary to correct for this market failure and achieve the socially optimal level of consumption.

If the Consumption of Good Generates an External Benefit, Then