If a good has an external cost,the
A) unregulated competitive market outcome is efficient.
B) marginal private cost reflects the external cost.
C) unregulated competitive market outcome is inefficient.
D) marginal social benefit is equal to the marginal social cost when the market is in equilibrium.
E) external benefit must equal the external cost.

Question

Quizplus · Accepted Answer

If a good has an external cost, the unregulated competitive market outcome is inefficient because the price signal does not reflect the full cost of producing or consuming the good. As a result, the market will overproduce the good, leading to a deadweight loss, and the marginal social cost will exceed the marginal social benefit.

If a Good Has an External Cost,the