An industry with external costs produces:
A) a quantity of output that is the socially ideal quantity.
B) a smaller quantity of output than the socially ideal quantity.
C) a larger quantity of output than the socially ideal quantity.
D) the socially ideal quantity of output if a specific subsidy is given to buyers.

Question

Quizplus · Accepted Answer

An industry with external costs, such as pollution, typically produces more than the socially ideal quantity because it does not bear the full cost of its production. These external costs are not reflected in the market price, leading to overproduction relative to the socially optimal level.

An Industry with External Costs Produces