Consider a market in which there is an external benefit. The inefficient market equilibrium is such that
A) too little output is produced.
B) too much output is produced.
C) price is too high.
D) marginal social cost is greater than marginal social benefit.

Question

Quizplus · Accepted Answer

In the presence of an external benefit, the market produces too little output because the private market does not account for the additional benefits to society, leading to underproduction relative to the socially optimal level.

Consider a Market in Which There Is an External Benefit