Economics (AS & A Level) · May / June 2026 · Paper 33 · Question 7
9708Private costs and benefits, externalities and social costs and benefits
In a market system, a good creates a negative production externality and a positive consumption externality. When will the market equilibrium achieve an allocatively efficient output of the good?
- Awhen the marginal external cost = the marginal external benefit
- Bwhen the marginal external cost > the marginal external benefit
- Cwhen the marginal external cost < the marginal external benefit
- Dwhen the marginal private benefit = the marginal social benefit
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Correct answer: A. when the marginal external cost = the marginal external benefit
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