Activities that generate external costs will likely be carried out at levels that _______ those that would be efficient.
A) equal to
B) are less than
C) exceed
D) compete with

Question

Quizplus · Accepted Answer

External costs are costs that are not borne by the person or entity responsible for the activity that generates the cost, but instead are imposed on others. When such costs are not factored into the decision-making process, the result is a market failure, and resources are not allocated in the most efficient way possible. If an activity generates external costs, such as pollution or traffic congestion, and those costs are not factored into the price of the activity, the activity will be carried out at a level that exceeds what would be efficient. Therefore, choice C is the correct answer.

Activities That Generate External Costs Will Likely Be Carried Out