If there are both external benefits and external costs associated with the production and consumption of a good, and the external benefits are less than the external costs,
A)More than the efficient amount is being produced
B)Less than the efficient amount is being produced
C)the efficient amount is being produced
D)We do not know whether the efficient amount, or more or less, is being produced.

Question

If there are both external benefits and external costs associated with the production and consumption of a good, and the external benefits are less than the external costs,
A)​More than the efficient amount is being produced
B)​Less than the efficient amount is being produced
C)​the efficient amount is being produced
D)​We do not know whether the efficient amount, or more or less, is being produced.

Quizplus · Accepted Answer

When external costs exceed external benefits, the market tends to produce more than the efficient amount because not all costs are accounted for in the market price and quantity decisions. This leads to overproduction relative to the socially optimal level.

If There Are Both External Benefits and External Costs Associated