If the production of a certain commodity generates external benefits for those who do not participate directly in the production process,then:
A)too large a quantity of the good will be produced.
B)at equilibrium,the marginal social benefit is less than the cost of producing an extra unit.
C)the government can subsidize consumption of the good and improve efficiency.
D)a government intervention in this market will cause the marginal social benefit to exceed the marginal social cost.

Question

Quizplus · Accepted Answer

When a commodity's production generates external benefits for non-participants, the market tends to produce less of it than is socially optimal. A government subsidy can align private incentives with social benefits, increasing production to a more efficient level.

If the Production of a Certain Commodity Generates External Benefits