Markets tend to underallocate resources to the production of a good when
A) there are negative externalities.
B) there are positive externalities.
C) there are public goods produced.
D) equilibrium occurs.

Question

Quizplus · Accepted Answer

Markets tend to underallocate resources to goods with positive externalities because the social benefit of consuming the good exceeds the private benefit, leading to less production and consumption than is socially optimal.

Markets Tend to Underallocate Resources to the Production of a Good