Use the following to answer question(s): Correcting for Market Failure: External Cost

-(Exhibit: Correcting for Market Failure: External Cost) Assume that there is an external cost involved, as illustrated in the exhibit.Economists argue that in an unregulated private market _______ is produced and the supply curve (S₁) reflects ________ cost.
A) too little; private
B) too much; private
C) too much; external
D) too little; external and private

Question

Use the following to answer question(s): Correcting for Market Failure: External Cost
 
-(Exhibit: Correcting for Market Failure: External Cost) Assume that there is an external cost involved, as illustrated in the exhibit.Economists argue that in an unregulated private market _______ is produced and the supply curve (S₁) reflects ________ cost.
A) too little; private 
B) too much; private 
C) too much; external 
D) too little; external and private

Quizplus · Accepted Answer

In an unregulated private market, too much of a good is produced when there are external costs not accounted for by the private market. The supply curve (S₁) reflects the private cost to producers, not including the external costs imposed on others.

Use the Following to Answer Question(s): Correcting for Market Failure