For a product with external benefits that is produced in a competitive,unregulated market,how can the resulting market output be described?
A) underproduction compared to the efficient level
B) overproduction compared to the efficient level
C) Production equals the efficient level.
D) Underproduction and overproduction are both possible depending on whether the external benefit is to consumption or production.
E) None of the above is correct.

Question

Quizplus · Accepted Answer

In a competitive, unregulated market, producers only consider their private costs and benefits, and not the external benefits. As a result, the market output will be less than the socially optimal level, leading to underproduction.

For a Product with External Benefits That Is Produced in a Competitive,unregulated