The market is likely to under-produce goods that generate external benefits because these benefits are not reflected in the price of the good and thus consumers might not value them as highly. As a result, market demand for such goods will be lower than the social demand, leading to underproduction.

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The Market Will

Question 43

Multiple Choice

The market will:

A) Always provide the optimal mix of output.
B) Overproduce goods that yield external benefits.
C) Produce an optimal amount of goods that generate external costs.
D) Under produce goods that generate external benefits.

Correct Answer: