Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve:
A) A much greater marginal benefit than marginal cost
B) A much greater marginal cost than marginal benefit
C) Having shortages in the market
D) Having surpluses in the market

Question

Quizplus · Accepted Answer

Completely eliminating the externality would involve a much greater marginal cost than marginal benefit, as the costs of reducing the externality to zero may outweigh the benefits gained from doing so.

Oftentimes, the Socially Optimal Quantity for a Product That Imposes