Consider a good produced in a competitive market that has external costs. Too ______________ of the good will be produced for economic efficiency and the price will be ______________ than the price that will convince consumers to purchase the efficient amount.Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.alittle; lowerblittle; highercmuch; lowerdmuch; higher
Question
Consider a good produced in a competitive market that has external costs. Too ______________ of the good will be produced for economic efficiency and the price will be ______________ than the price that will convince consumers to purchase the efficient amount.Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.alittle; lowerblittle; highercmuch; lowerdmuch; higher
Solution 1
The correct answer is "much; lower". In a competitive market with external costs, producers do not take into account the costs that their production imposes on others. As a result, they produce more of the good than is economically efficient. This overproduction leads to a lower market price than the price that would convince consumers to purchase the efficient amount.
Solution 2
The correct answer is "much; lower". This is because when a good has external costs that are not considered in the production cost, producers tend to produce more of the good than is economically efficient. This is because the cost of production is artificially low. As a result, the price of the good is also lower than the price that would convince consumers to purchase the efficient amount.
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