Assume that production of a good generates external benefits for others. The equilibrium price of the good will be ____ and the equilibrium quantity ____ for efficient resource allocation.
A)too high; too high.
B)too high; too low.
C)too low; too high.
D)too low, too low.

Question

Assume that production of a good generates external benefits for others. The equilibrium price of the good will be ____ and the equilibrium quantity ____ for efficient resource allocation.
A)​too high; too high.
B)​too high; too low.
C)​too low; too high.
D)​too low, too low.

Quizplus · Accepted Answer

When a good generates external benefits, the market fails to account for these benefits, leading to a lower price and quantity than is socially optimal.

Assume That Production of a Good Generates External Benefits for Others