The market output level tends to be socially optimal when
A)Demand equals supply in the market
B)All costs and benefits are private and MSB=MSC
C)There is neither a shortage nor a surplus of the product
D)There are externalities in production
E)There are externalities in consumption

Question

Quizplus · Accepted Answer

The socially optimal level of output occurs when marginal social benefit (MSB) equals marginal social cost (MSC). This occurs when all costs and benefits are taken into account, including externalities. When MSB=MSC, the market output level is efficient and allocatively optimal, meaning that resources are being utilized in a way that maximizes social welfare. Therefore, option (B) is the best choice.

The Market Output Level Tends to Be Socially Optimal When