When underproduction occurs,
A) producers gain more surplus at the expense of consumers.
B) marginal cost is greater than marginal benefit.
C) consumer surplus increases to a harmful amount.
D) there is a deadweight loss that is borne by the entire society.
E) the deadweight loss harms only consumers.

Question

Quizplus · Accepted Answer

Underproduction occurs when the quantity of a good or service supplied is less than the socially optimal level. This creates a situation where marginal benefit is greater than marginal cost, and there is a potential for producers to increase output and gain more surplus. However, due to the market failure, the underproduction results in a deadweight loss that is borne by the entire society, as there is a missed opportunity to provide additional goods and services that would have been valued by consumers above their production costs. Therefore, choice D is the best option as it clearly captures the negative consequences of underproduction for the society as a whole.

When Underproduction Occurs