Which of the following leads to an underallocation of resources to a specific economic activity?
A) External costs
B) External benefits
C) Marginal costs
D) Effluent benefits

Question

Quizplus · Accepted Answer

External benefits lead to an underallocation of resources because the full social benefits of the activity are not reflected in the market demand, causing less of the activity to be produced than is socially optimal.

Which of the Following Leads to an Underallocation of Resources