Question

compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:
a. large and a price that is too low.
b. small and a price that is too low.
c. large and a price that is too high.
d. small and a price that is too high.

Explanation:

When production creates external costs, competitive firms only consider their private costs, not the full social costs (private + external). This leads them to produce more output than the socially efficient level. Additionally, since they base pricing on lower private costs, the market price will be below the price that reflects the true social cost.

Answer:

a. large and a price that is too low.