Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve
A)a much greater marginal benefit than marginal cost.
B)a much greater marginal cost than marginal benefit.
C)having shortages in the market.
D)having surpluses in the market.

Question

Quizplus · Accepted Answer

The socially optimal quantity for a product that imposes external costs is typically greater than zero because completely eliminating the externality (i.e., reducing the production and consumption of the product to zero) would often involve a much greater marginal cost than the marginal benefit derived from such elimination. This means that the cost of completely removing the negative externality would outweigh the benefits, making it economically inefficient to do so.

Oftentimes, the Socially Optimal Quantity for a Product That Imposes