In the market for a public good, the equilibrium quantity of the good produced is too low because:
A)society does not want more to be produced.
B)a public good is an example of a negative externality.
C)the benefits of the good are not fully internalized by the producer.
D)a public good is a good consumed by the government.

Question

Quizplus · Accepted Answer

The benefits of a public good are not fully internalized by the producer. This means that the producer cannot capture all the benefits from producing the public good, since it is available to everyone in society. As a result, the producer will not have enough incentive to produce as much of the public good as is socially optimal, leading to an equilibrium quantity that is too low.

In the Market for a Public Good, the Equilibrium Quantity