Consider a market where production of the good is creating a negative externality. In the market equilibrium, there is a deadweight loss because the:

a. internal cost is not equal to the internal benefti.

b. internal cost is not equal to the external cost.

c. social cost is greater than the internal benefit.

d. internal benefit is not equal to the external benefit.

e. internal benefit is less than the internal cost.

Question

Business

Jada Zuniga

20 August, 06:40

Consider a market where production of the good is creating a negative externality. In the market equilibrium, there is a deadweight loss because the:

a. internal cost is not equal to the internal benefti.

b. internal cost is not equal to the external cost.

c. social cost is greater than the internal benefit.

d. internal benefit is not equal to the external benefit.

e. internal benefit is less than the internal cost.

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Answers (1)

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Garner · Answer 1

Consider a market where production of the good is creating a negative externality. In the market equilibrium, there is a dead weight loss because the: social cost is greater than the internal benefit.

Option C

Explanation:

Market balance is achieved by comparing private and internal costs, but appropriate social benefits can be achieved by comparing social and internal benefits.

Social costs are higher than confidential costs with negative externalises, and social costs are higher than internal benefits in the context of a market balance.

Social benefits include those private benefits and about external production / consumption benefits. When a good has substantial external benefits, the social benefit exceeds the private benefit.