When there is an external benefit, the unregulated market
A) overproduces the good or service.
B) underproduces the good or service.
C) reaches the most efficient solution.
D) maximizes public welfare.

Question

Quizplus · Accepted Answer

When there is an external benefit, the social benefit exceeds the private benefit. In an unregulated market, producers only consider private benefits while ignoring external benefits. Therefore, they will underproduce the good or service, leading to a market failure.

When There Is an External Benefit, the Unregulated Market