Which statement is correct under a market with externalities?
A) Social surplus is maximized as long as consumer surplus is maximized.
B) Social surplus is maximized as long as producer surplus is maximized.
C) Social surplus is maximized as long as both consumer surplus and producer surplus are maximized.
D) None of these statements is correct.

Question

Quizplus · Accepted Answer

Externalities cause a divergence between private and social costs or benefits, meaning that maximizing consumer or producer surplus alone does not necessarily maximize social surplus.

Which Statement Is Correct Under a Market with Externalities