If there are significant external benefits associated with the consumption of a product, it can be said that the private benefit to the consumer ____ the relative importance of this product to society and output should ____ to move toward the efficient situation.
A)overstates; increase
B)understates; increase
C)overstates; decrease
D)understates; decrease
E)overstates; remain the same

Question

Quizplus · Accepted Answer

When there are significant external benefits, the private benefit understates the total benefit to society, indicating that output should increase to reach an efficient allocation of resources.

If There Are Significant External Benefits Associated with the Consumption