Society is likely to over-allocate resources to produce goods that
A) are public goods.
B) are merit goods.
C) generate positive externalities.
D) generate negative externalities.

Question

Quizplus · Accepted Answer

Society is likely to over-allocate resources to produce goods that generate negative externalities, as these goods have costs that are not being fully accounted for in the market. Producers are not paying the full cost of producing these goods, and as a result, they have an incentive to produce more of them than they would if they had to pay the full cost. This can lead to an overallocation of resources to these goods, at the expense of other goods and services that may have more socially beneficial outcomes.

Society Is Likely to Over-Allocate Resources to Produce Goods That