In a market where there are external or spillover costs associated with consumption and production,the equilibrium will not be efficient because:
A) price will be greater than MC.
B) firms will shut down until costs are reduced.
C) costs of production will,on average,be too high.
D) too many resources will be allocated to production of the good.

Question

Quizplus · Accepted Answer

In the presence of external costs, the market fails to account for the full social cost of production, leading to overproduction and over-allocation of resources to the good, making the equilibrium inefficient.

In a Market Where There Are External or Spillover Costs