In the market economy, if a good has external benefits it is least likely to lead to: A. a social loss. B. a deadweight loss. C. overproduction of the good. D. an inefficient quantity being produced The answer in the book is given as C, but I think its D. Can anyone explain me why?
Oops, I did not read the question properly, It says-> least likely. I thought it was the other way
It is C because external benefits generate less than efficient quantities of quantity produces and consumed. In essence, the presence of external benefits cause underproduction of a good, not overproduction. At least, this is how I understood the concept.