Which of the following can result in a market producing an inefficient quantity of a good?
i.competition
ii.an external cost or an external benefit
iii.a tax
A) i only
B) iii only
C) ii only
D) ii and iii
E) i and iii

Question

Quizplus · Accepted Answer

An external cost or an external benefit (ii) can result in an inefficient quantity of a good because the market may not account for the true cost or benefit of producing or consuming the good. Similarly, a tax (iii) can also lead to an inefficient outcome by increasing the cost of production or consumption and reducing the quantity produced or consumed. Competition (i) can lead to an efficient outcome if there are no externalities, but it is not necessarily sufficient to ensure efficiency in the presence of externalities or government intervention.

Which of the Following Can Result in a Market Producing