Which of the following is TRUE when there is the socially optimal amount of a private good with no externality?

Question

Quizplus · Accepted Answer

When there is the socially optimal amount of a private good with no externality, the social marginal benefit (SMB) equals private marginal cost (PMC). This is because at this level of production, the marginal benefit to society justifies the marginal cost to the producer, leading to the optimal allocation of resources. Private benefits (PB) may exceed private costs (PC) but may not have considered the external costs and benefits that affected society. Therefore, the socially optimal consumption can be achieved by considering the optimal allocation of resources. Choice A is incorrect because it only refers to private costs and benefits. Choice C is wrong because both consumer surplus and producer surplus must be accounted for and they may not necessarily be equal. Choice D is also incorrect because it implies that producers are producing less than the socially optimal amount, which is not the case in this scenario.

Which of the Following Is TRUE When There Is the Socially