The basic reason that a competitive unregulated market produces an inefficient amount of a good with an external cost is because
A) producers cannot measure marginal social cost.
B) producers do not pay the external cost.
C) the general public does not care about external costs.
D) external costs are not a political issue.
E) the external cost is paid by consumers rather than producers.

Question

Quizplus · Accepted Answer

In a competitive unregulated market, producers only consider their private costs of production and do not take into account the external costs that are imposed on society. Therefore, they do not bear the full cost of production, which leads to overproduction of the good from society’s perspective. As a result, the production level is inefficiently high.

The Basic Reason That a Competitive Unregulated Market Produces an Inefficient