A production quota is set below the equilibrium quantity. At the quota quantity, marginal social benefit is ________ marginal social cost and the level of production is ________.
A)less than; efficient
B)greater than; efficient
C)less than; inefficient
D)equal to; efficient

Question

Quizplus · Accepted Answer

When a production quota is set below the equilibrium quantity, it leads to a situation of inefficient production as it creates a deadweight loss by reducing the quantity of the good produced. At the quota quantity, the marginal social benefit from producing an additional unit of the good is less than the marginal social cost, which indicates that resources are being allocated in an inefficient manner. Therefore, choice C is the correct answer.

A Production Quota Is Set Below the Equilibrium Quantity