The deadweight loss associated with producing a product that has an external cost occurs because
A) too much output is produced.
B) too little output is produced.
C) the price that firms charge for the good is too high.
D) not enough resources are allocated to producing the good.
E) the marginal social cost does not equal zero.

Question

Quizplus · Accepted Answer

When a product has an external cost, it means that not all costs of production are accounted for in the market price. This leads to overproduction relative to the socially optimal level, as the price does not reflect the true cost to society, hence causing a deadweight loss.

The Deadweight Loss Associated with Producing a Product That Has