When overproduction of a good occurs
A)deadweight loss is eliminated.
B)the sum of consumer surplus and producer surplus is maximized.
C)marginal social cost exceeds marginal social benefit.
D)marginal social benefit exceeds marginal social cost.
E)the good is a public good.

Question

Quizplus · Accepted Answer

When overproduction of a good occurs, it means that more units of the good are produced than the optimal level. At this point, the marginal social cost of producing each additional unit exceeds the marginal social benefit, leading to inefficient allocation of resources. Hence, there is a deadweight loss, which means that some potential gains from trade are lost in the market. Therefore, the best choice is C as overproduction leads to marginal social cost exceeding marginal social benefit.

When Overproduction of a Good Occurs