Which of the following statements is TRUE?
I. If an activity creates an external cost of $15, the government should subsidize the activity by $15.
II. Social surplus is maximized when the private marginal benefit equals the social cost.
III. External costs result in markets producing too much output.
IV. Someone pays external costs other than the producer or consumer.
A) I and III only
B) II, III, and IV only
C) III only
D) II and IV only

Question

Quizplus · Accepted Answer

External costs lead to overproduction, and someone other than the producer or consumer bears these costs. Social surplus is maximized when private marginal benefit equals social cost.

Which of the Following Statements Is TRUE