If there is an external cost from making paper, an unregulated competitive market produces
A) less than the efficient quantity.
B) more than the efficient quantity.
C) the efficient quantity.
D) a quantity that could be greater than, the same as, or less than the efficient amount.

Question

Quizplus · Accepted Answer

When there is an external cost (a negative externality) from making paper, such as environmental damage, an unregulated competitive market tends to produce more than the efficient quantity. This is because the market price does not reflect the external costs, leading to overproduction from a societal perspective.

If There Is an External Cost from Making Paper, an Unregulated