An external cost in the production of a good creates a difference between the
i.costs borne by the producer and the costs borne by society in general.
ii.efficient quantity of output and the equilibrium quantity of output.
iii.marginal social cost and the marginal private cost.
A) i only
B) iii only
C) ii and iii
D) i, ii, and iii
E) i and iii

Question

Quizplus · Accepted Answer

All three statements accurately describe different aspects of how an external cost in the production of a good affects economic outcomes. External costs lead to discrepancies between the costs experienced by the producer and those experienced by society (i), cause a divergence between the efficient quantity of output and the equilibrium quantity of output (ii), and result in a difference between the marginal social cost and the marginal private cost (iii).

An External Cost in the Production of a Good Creates