Which of the following is true?
I.In an unregulated market with an external benefit,consumers don't take it into account and consume less than the efficient quantity.
Ii.Marginal social cost equals marginal private cost minus marginal external cost.
Iii.An unregulated market produces more than the efficient quantity of a good with an external cost.
A)Only i
B)Only ii
C)Only iii
D)i and ii
E)i and iii

Question

Quizplus · Accepted Answer

Statement i is true as consumers do not account for external benefits in their consumption decisions, resulting in a lower consumption level than the socially efficient level.

Statement ii is true as the marginal social cost is equal to the sum of the marginal private cost and the marginal external cost, which can be expressed as MSC = MPC + MEC.

Statement iii is false as an unregulated market can produce less than or more than the efficient quantity of a good with an external cost, depending on whether the external cost is positive or negative.

Which of the Following Is True