Final answer:
A competitive, unregulated market, where the marginal social cost is greater than the marginal private cost, will produce more than the efficient quantity of Good A, creating a deadweight loss. The government may intervene by imposing a tax to align private costs with social costs, aiming to achieve allocative efficiency.
Step-by-step explanation:
When discussing the production and pricing of goods in different market structures, we can encounter a scenario where the marginal social cost (MSC) is greater than the marginal private cost (MPC) of producing Good A. This implies that there are external costs, such as pollution, that are not reflected in the private costs of production. As a result, a competitive, unregulated market, which does not take these externalities into account, tends to produce more than the efficient quantity of Good A.
In the context of the provided information, let us consider the options given in the student's question:
- A competitive, unregulated market produces less than the efficient quantity of Good A.
- A competitive, unregulated market produces the efficient quantity of Good A.
- A competitive, unregulated market produces more than the efficient quantity of Good A.
- The government should levy a tax on the production of Good A that is equal to the horizontal distance between the two marginal cost curves.
- A competitive, unregulated market does not create a deadweight loss.
The correct answer to this question is that a competitive, unregulated market produces more than the efficient quantity of Good A. This is because the market does not account for the external costs, leading to overproduction relative to the socially optimal level where MSC equals marginal benefit (MB). This situation typically causes a deadweight loss, attributed to the inefficiency resulting from the overconsumption of a good with negative externalities.
In such cases, government intervention, such as a corrective tax, can be applied to align the marginal private cost with the marginal social cost, thereby reducing the quantity produced to the efficient level. This coincides with ensuring that the price paid for the good reflects all costs to society, not just the production costs borne by the firm.