Question

Externalities affect the economic efficiency of a market equilibrium by causing a difference between:________

A. the marginal private cost of production and the marginal social cost of production.
B. the marginal private benefit of consumption and the marginal social benefit of production.
C. consumer surplus and producer surplus.
D. both a and b.
E. all of the above.

Answer 1

D. both a and b.

Step-by-step explanation:

The marginal cost of production is the marginal private cost. When an individual or a firm spend extra cost for an extra unit of good or service, it is called marginal private cost. The marginal social cost of production is the cost that an entire society pays for the consumption of an extra unit of goods or services.

The extra benefit a consumer gets from the use of extra good is referred to as the marginal private benefit. When there is a change in benefit due to the extra unit of consumption, it is the marginal social benefit. It includes an extra benefit.

The economic efficiency of a market equilibrium deters the marginal private cost and benefit. Externalities affect that market equilibrium.

So, both a and b is the answer.