In the case of an external cost:
A) the agent responsible for the cost must pay for the cost.
B) the government will always pay the cost.
C) the agent responsible for the external cost will produce too much of the good or service involved.
D) there is generally an offsetting social benefit.

Question

Quizplus · Accepted Answer

In the case of an external cost, the agent responsible for the cost will not bear the full cost of their actions. As a result, they will produce too much of the good or service involved, leading to an inefficient outcome. This is known as market failure. The other options (A, B, and D) are incorrect as they do not fully capture the nature of external costs.

In the Case of an External Cost