If a product has zero external costs, then
A) marginal social cost equals zero.
B) marginal social cost is less than marginal private cost.
C) marginal social cost equals marginal private cost.
D) marginal social cost is greater than marginal private cost.
E) We need more information to determine the relationship between marginal private cost and marginal social cost.

Question

Quizplus · Accepted Answer

If a product has zero external costs, it means that all costs associated with the production and consumption of the product are already reflected in the market price, i.e., the marginal private cost. Therefore, the marginal social cost (which includes both private costs and external costs) would be equal to the marginal private cost.

If a Product Has Zero External Costs, Then