Suppose that the ABC industry produces a good that results in significant spillover costs to society.Such production suggests that:
A) resources are underallocated to the industry.
B) resources are overallocated to the industry.
C) the firms in this industry are not maximizing profits.
D) at the market price,quantity demanded is less than quantity supplied.

Question

Quizplus · Accepted Answer

If the production of a good results in significant spillover costs to society, it means that the production of the good has negative externalities. This suggests that resources are overallocated to the industry, as the market price does not reflect the true social cost of production. Therefore, the industry is producing more than what is socially optimal, and resources are being wasted.

Suppose That the ABC Industry Produces a Good That Results