In a market with external costs, the market price is:
A) higher than the efficient price.
B) lower than the efficient price.
C) equal to the efficient price.
D) regulated by the government.

Question

Quizplus · Accepted Answer

In a market with external costs, the market price is lower than the efficient price because the external costs are not reflected in the market price, leading to overproduction and underpricing relative to the socially optimal level.

In a Market with External Costs, the Market Price Is